After falling broadly late last week, the U.S dollar regained some ground on Monday as the market is watching cautiously to see if China will keep making comments on the reserve currency. China’s central bank did not mention the Dollar by name on Friday but said it was a serious defect in the international monetary system that one currency should dominate.
Debate about an alternative international currency has heated up in recent months and central bankers gathering in Basel this weekend also discussed the dollar’s role. Still, the dollar will keep its role as reserve currency, as China is unlikely to change the composition of its foreign currency reserves any time soon. That’s dollar positive analysts said.
The US Dollar, after dropping last week due to renewed calls from China and Russia to switch to an alternate reserve currency, began to steadily strengthen in today’s early morning hours. From a peak high above 1.4100 against the EUR, the USD has pared some of these losses and is currently trading just above 1.4000. Versus the British Pound, the greenback has gone from 1.6550 back towards 1.6450, remaining within the range this pair has experienced over the previous 2 weeks.
While China’s recent call for a new international reserve currency, and Russia’s support of such an action, has put downward pressure on the USD lately; the impact has been somewhat muted. It has been forecast a number of times that the greenback will begin to depreciate against most currency pairs as the global economy recovers. As one of the world’s leading safe-haven investments, the Dollar will no doubt take a hit from an increase to risk appetite which naturally stems from economic recovery.
China and Russia added to this weight with a call for portfolio diversification, which in fact carries roughly the same impact as calling for the purchase of riskier assets. For economic giants, such as these two countries, to call for a diversion away from the largest economic rival is a basic economic weapon aimed at gaining a larger market share. The problem is that they lay out a general economic plan which is already understood to be in motion. This is why the impact was muted, and why the USD will still experience multiple up-ticks in the near future.
Looking forward to today’s trading, however, will see traders with little economic news to wager on for the US Dollar. Britain and Japan appear to be releasing the bulk of today’s news, which means we may see a day of trading with low liquidity and increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.
