Risk appetite improves on U.S. stock gains, upbeat data from China and Europe.
The dollar fell to its lowest levels so far this year against both a basket of currencies and the euro Monday, as optimism that the global economy is on the road to recovery boosted riskier assets.
Commodity-related currencies including the Australian and New Zealand dollars, which are considered to be higher risk, hit eight-month highs against their U.S. counterpart as oil prices jumped and U.S. stocks rose.
The dollar pared some losses after a key measure of U.S. inflation rose more than expected and data showed U.S. manufacturing contracted in May, though at a slower rate, but that failed to derail the day’s overall trend.
Dollar Falls
“Generally, this is still a case of better-than-expected data not necessarily good for the U.S. dollar,” said Shaun Osborne, chief currency strategist at TD Securities in Toronto. “We expect no rebound in sight for the dollar just yet.”
In late morning New York trade, the dollar index was down 0.2% at 79.077, after hitting its lowest level since mid-December at 78.586 earlier in the global session.
The euro gained 0.2% on the day to $1.4179, having rallied as high as around $1.4246, its strongest since late December.
Among perceived higher risk currencies, sterling rose to a seven-month high against the dollar at $1.6436, while the Australian and New Zealand dollars hit eight-month highs of $0.8137 and $0.6520 respectively.
“This is a market that is in the process of selling the dollar against everything, buying commodities, and that should continue today,” said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J. “The move has taken on something of a self-fulfilling quality to it now.”
The dollar did manage gains against the yen, climbing 1.4% to 96.65 yen. The yen is considered the least risky of all currencies and falls against all currencies as risk tolerance rises.
Adding to optimism that the global economy may be over the worst of the recession, the final euro zone PMI manufacturing index climbed to a seven-month high of 40.7 in May, up from the provisional estimate of 40.5.
The U.K. manufacturing PMI was also stronger than expected, showing the slowest contraction in the sector in a year.
Earlier, the Chinese PMI came in at 53.1 in May, and while it fell from 53.5 in April, it was the third month in a row that the reading has been above the 50 level that separates expansion from contraction.
General Motors Corp (GM, Fortune 500). filed for bankruptcy as expected, removing some uncertainty about the ailing U.S. auto industry. This helped risk appetite and weighed on the dollar.
Tags: China, Dollar Falls, Europe, Global Economy, USA
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