Forex: Dollar weakens on good economic news

The Dollar depreciated yesterday against the Euro and Pound, with EUR/USD reaching a one-month high, and the Pound reaching its highest level since January 9; Kathy Lien, Director of Currency Market at GFT, observes that risk appetite, coming from good economic news, buoy Euro and Pound whilst damage the Dollar.

Yesterday, on good macroeconomic data in the U.S. fuelled Euro and Pound higher against the Dollar, affirms Lien: “Stronger pending home sales and higher construction spending has driven the U.S. dollar lower against all of the higher yielding currencies. The dollar is returning to its usual trend of selling off on good data and rising on bad.”

On the contrary, grim economic news in the U.S. usually help the Dollar, says Lien: “Last week, we had a departure from this trend as the reversal of month end flows lead to a broad dollar rally. The price action in the currency market indicates that the dollar's safe haven status and by extension, the market's risk appetite is still determining its trend.”

Furthermore, Lien states that, probable better than expected banks’ “stress test” results could push Euro and Pound further up: “Yet stronger data is not the only reason why the dollar is rising. The NY Times reports that the results of this week's stress tests on banks may not be as bad as everyone fears. None of the banks are expected to be insolvent according to a senior government official and all the losses are manageable.”