Traders Benefit From New Currency Exchange Rates

The dollar declined the most since May and the greenback became the least expensive funding currency. The new currency exchange rates, prompted by the decline of the dollar, motivated investors to sell the dollar and buy riskier assets. News that China’s industrial output rose 12.3% was also a catalyst contributing to the Dollar’s weakness.

The weakness of the dollar seems to be a dominating theme in the currency market for the second half of 2009. The appetite for risk has improved. Everyone is looking to a hopeful recovery in the U.S. and all other countries in the fourth quarter into 2010.

The U.S. dollar moved lower against its Japanese counterpart in early Asian trading today, after funding rates for dollar loans dropped below those of its major rivals. Last week ended with traders continuing to use the Dollar as a funding currency rather than the traditional Yen.

Unless there is a dramatic turnaround to the downside in global equity markets, there will be more pressure on the U.S. Dollar and Japanese Yen.

The deficit concerns undermine the dollar, but when growth begins to recover, the deficit picture should start to improve. For now, traders will benefit from the new currency exchange rates and will use the U.S. Dollar to fund riskier assets.

Written by Cheryl Phillips