Dollar Falls to Seven-Week Low Against Euro as Oil Prices Rise and Economic Recovery Signs Emerge

Strategic Insights -

As higher oil prices and signs of a recovering global economy boosted investor risk sentiment, the dollar fell to a seven-week low against the euro on Tuesday. Oil prices briefly touched $60 a barrel, a level that prompted investors to sell the dollar and buy riskier currencies. The euro reached a peak of $1.3708, while the pound climbed to $1.5352, its highest level in four months. U.S. stock markets closed higher, further boosting risk sentiment and sending foreign-exchange investors into currencies deemed riskier than the dollar.

Key Takeaways:

  • The dollar fell to a seven-week low against the euro on Tuesday as higher oil prices and signs of a recovering global economy boosted investor risk sentiment.
  • Oil prices briefly touched $60 a barrel, prompting investors to sell the dollar and buy riskier currencies.
  • The euro reached a peak of $1.3708, while the pound climbed to $1.5352, its highest level in four months.
  • U.S. stock markets closed higher, further boosting risk sentiment and sending foreign-exchange investors into currencies deemed riskier than the dollar.
  • Analysts expect more dollar-selling in the coming weeks if economic-recovery signs continue to emerge.
  • However, they also caution that the dollar's losses may not be steady or severe, and that a strong rebound is unlikely given the U.S. economy's still-low growth rate and job losses.
  • The dollar's decline came despite Federal Reserve Chairman Ben Bernanke's comments supporting the currency, and was instead driven by concerns about low interest rates and deficit-spending.

Statistics:

  • Oil prices briefly rose above $60 a barrel on Tuesday, prompting investors to sell the dollar and buy riskier currencies.
  • The euro reached a peak of $1.3708 on Tuesday, while the pound climed to $1.5352, its highest level in four months.
  • U.S. stock markets closed higher on Tuesday, with the S&P 500 gaining 0.5%.
  • The dollar was at Y96.47, down from Y97.41, according to EBS.
  • The euro was at Y131.64, down from Y132.31.
  • The U.K. pound was at $1.5260, up from $1.5120.
  • The dollar was at CHF1.1067, down from CHF1.1099 late Monday.

Sources:

  • Dow Jones Commodities News via Comtex (May 12, 2009)
  • Office for National Statistics (U.K.)
  • Federal Reserve (Chairman Ben Bernanke's comments)
  • Scotia Capital (currency analysts)
  • Dow Jones Newswires (Dan Molinski, 201 938-2245, dan.molinski@dowjones.com)