The dollar traded slightly higher on Monday as safe haven demand increased amidst a climate of pessimistic recovery fears and declining risk appetite. The following day continued the trend as investors sought safe havens such as the Swiss franc, the yen and the dollar. There was little rmarket reaction to the expectation beating increase in the S&P Case-Shiller 20 cities house price index, however, which showed a 4.2% rise YoY in June. The next announcement which may prove market-moving is the publication of the minutes of the last Federal Reserve policy meeting this evening at 6pm GMT. At midday GMT the dollar was trading at 1.2686 to the euro and 1.5403 to the pound.

   The euro fell yesterday after lower than expected CPI readings from Germany led to a gloomier outlook and global risk appetite declined. On Tuesday safe haven demand continued with the Swiss franc in particular benefiting although the euro made a surprise reversal in the morning and continued gaining into the afternoon, this may have been caused bypositive data released showing no-change in the 10% unemployment rate for the euro-zone and a slight improvement in Germany. At midday GMT the common currency was trading at 1.2686 to the dollar and 0.8234 to the pound.

   The pound fell against most counterparts as mixed data revealed a slow down in business investment and risk aversion led investors to seek safety. The trend continued on Tuesday morning despite an estimate -beating increase in Mortgage Approvals and an unexpected increase in Consumer Credit, advancing from -0.1bn in June to 0.2bn in July. At midday GMT sterling was trading at 1.5403 to the dollar and 130.21 to the yen.

   The yen rallied after the announcement of fresh 10 trillion yen stimulus measures by the BOJ were judged inadequate to combat its inexorable rise. The rally continued on Tuesday albeit at a slower pace as safe-harbour demand increased amidst fears of a global economic slow-down. Veiled intervention threats from Japan’s Finance Minister Yoshihiko Noda failed to have much impact and data showed a mixture of a slowdown in industrial and manufacturing but an increase in Retail Sales. At midday GMT the yen was trading at 84.53 to the dollar and 107.24 to the euro.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst