An improvement in investor sentiment proved to be to the detriment of the US dollar, which slumped more than 1 percent against the euro and British pound, over 2 percent versus the Canadian dollar, and a whopping 8.33 percent against the Australian dollar.
We’ve seen that during the past few weeks, demand for the greenback has picked up significantly as a safe-haven asset, but now that we’ve seen a turnaround in risk aversion, the US dollar is selling off quite a bit along with the other major safe haven: gold. Last Friday I mentioned that the pressure was really on for the Group of Seven (G7) or European Union (EU) to come out with a statement strong enough to help stabilize the markets. The G7’s statement on Friday failed to do the trick, but the EU’s statement on Sunday – which was a bit more specific on policy actions – appeared to do the trick (see the Euro, British pound section below for more). Indeed, the credit and stock markets started to show signs of recovery, as indicated by the sharpest rise in the DJIA since 1933 and broad declines in overnight Libor rates. This trend is likely to continue in coming days, barring the release of negative financial news, as there is no key data scheduled for release out of the US on Tuesday. Related Articles: US Dollar Weekly Outlook, 5 Key Events for the Forex Market This Week 10-12-08, COT Indicators Turn From Sentiment Extremes
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