Dollar Weakens as Refuge Currencies Lose Demand

The dollar dropped against the euro for the second day in a row as stock market conditions improve, bringing risk appetite back among investors.

Refuge investments such as the yen and the greenback are losing ground as risk aversion declines in global markets, pushed by improved economic conditions and confidence in some economies. After rising speculations that Chrysler LLC will go bankrupt, the U.S. dollar fell against most of the world currencies, specially against those who had favorable domestic news, such as the Taiwanese dollar, which posted the biggest gains against the greenback in 9 years, and the South Korean won, which had an optimistic day thanks to favorable domestic news on the equities market.

Analysts explain the fall of the dollar in a very simple cyclic way: as speculations that the global slump is easing grow, risk appetite increases amid traders, which will consequently inject money in equity markets and high-yielding currencies, selling their haven assets, such as the Swiss franc and the dollar in order to obtain higher gains. Depending on how the events regarding the recession will progress during the following months, it is likely that the dollar will see a significant fall in case of a continuous rise in stock markets.

The EUR/USD rose from 1.3155 to 1.3294 while the GBP/USD climbed to 1.4859 from 1.4728. In Oceania, the AUD/USD traded at 0.7314 from 0.7125.

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