Stocks to Influence Currency Markets

Euro Zone Decline Continues
Last week the risk appetite that had dominated currency markets for the previous two weeks came to an abrupt halt. Despite warnings from experts that economic optimism was premature many investors and traders adopted the 'green shoots of recovery' theory. The euro to dollar exchange rate posted record monthly gains and commodity based currencies such as the Canadian and Australian dollars rose. Data that showed the Euro Zone economy declining at its fastest pace ever triggered a return to risk aversion benefiting the US dollar and the Japanese Yen.

Yen Supported by Safe Haven Demand
A drop in Asian and European shares provided support for the Yen and the Dollar as investors sold riskier currencies and returned to the safe haven of the dollar and yen. The dollar index which measures the dollar's performance against six major currencies rose 0.2 late Friday to 83.161 .DXY affecting the dollar exchange rate. The euro to dollar exchange rate fell 0.4% to $1.3436 down from a high of almost $1.37 last week.

ECB Council Member Calls For Caution
The euro dollar exchange rate was also affected last week by remarks from ECB council member Axel Weber warned against "exaggerating" recent data suggesting the economy is stabilizing. In an interview with Financial Times Deutschland Weber stated, "The crisis has yet to reach the people via job losses. Calling an end to the crisis too early is very risky. People will be disappointed and that could have an enormous impact on confidence."

This Week to be Dominated by Equities
Stocks are expected to influence currency exchange rates throughout the coming week. Sue Trinh of RBC Capital Markets stated, "We're in for another week dominated by equities and given the poor close of the U.S. market, there is caution about a sell-off in risk.


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