Dollar Drops on Risk Fueled Session

The dollar declined versus the euro and higher-yielding currencies as stocks rallied worldwide on evidences that the economic recovery is improving around the world, fueling risk appetite among traders that opted today specially by currencies like the South African rand, a high-yielding emerging market bet.

The yen was one of the few currencies that lost versus the greenback today as risk appetite declined attractiveness for the safest bet in currency markets, and as speculations that the Federal Reserve may start to lift stimulus are still spread in financial markets worldwide. The best performers today versus the dollar and other currencies were the Australian dollar and the South African rand, both commodity producer countries, that witnessed an advance in their currencies as demand for metals is likely to rise in 2010, which if confirmed, will boost both countries’ economies. A consumer confidence report is due to be published today in the U.S., forecasts suggest a significant improvement, which could pare dollar’s early losses today.

Risk appetite is the driver in currency markets today and the dollar gained sharply in December, which is giving high-yielding currencies the chance to pare some of the dollar’s advances today, specially for the rand and the Aussie dollar, which declined sharply from a 2009 record high in the end of November.

AUD/USD traded at 0.8976 as of 12:49 GMT from a intraday rate of 0.8869. EUR/USD rose to 1.4445 from 1.4393.

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