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Opening this week’s trading session with relatively positive news, the USD appears to be regaining its strength after last week’s negative economic data. Climbing over 100 points against the EUR in today’s early trading session, as well as continuing its steady rise against the Swiss Franc, the Dollar has gained some surprising momentum given recent economic news from the United States. The USD in fact sits just below 1.2600 against the EUR, steadily increasing its momentum.

Over the weekend, G20 leaders met in Washington D.C. to discuss the recent economic crisis. The event may well be the last of its kind for the Bush administration before stepping down to the incoming administration of Barack Obama.

Many of the smaller members of the G20 left the summit with feelings of doubt, however, as an agreement to continue free-market capitalism was the only agreed upon conclusion stemming from this meeting. Brazilian President Luiz Inácio Lula da Silva called on the larger members not just to lend money as a band-aid to financial troubles, but to continue with policies which bolster growth and increase trade as a healthier solution to the recent economic crisis.

Looking ahead, traders will see the release of important manufacturing and production data from the US later today, beginning with the Empire State Manufacturing Index. Throughout the week investors will also see the release of many primary economic indicators such as PPI, CPI, Building Permits, TIC Long-Term Purchases, and Unemployment Claims. The USD is set for a volatile week as most of this data is forecasted to be worse than their previous releases meaning traders may see a reversal to the USD’s strength starting early this week.

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Following the U.S. Treasury’s announcement to inject $250 billion into financial institutions this week, the dollar finally appears to have broken its 3-day downward trend against the other major currencies. The dollar was traded at $1.3575 against the EUR at the end of yesterday’s trading session after climbing steadily to 1.3767 over the course of the last few days. The previous appreciation of the USD was largely due to the reluctance of banks to lend to one another, which spurred a surge in demand for U.S. currency funding in global money markets. However, the Federal Reserve announced that it would offer European banks as many dollars as needed, and at a fixed interest rate, which has caused the dollar to slip against the other major currencies in recent sessions as an increased supply of USD is expected to ease demand.

As a result of the aggressive steps taken to pump cash into troubled banks, investors have started to unwind safe-haven trades in the USD which has also caused a correction to the greenback’s recent upswing. However, even after the latest measures by global governments to flood banks with cash, inter-bank lending rates were not expected to fall so quickly. It is still too soon to determine whether this move is going to end up causing bearishness for the USD over the long run, or if it will help stabilize the economic system.

Traders have an important day of trading ahead of them today. Starting around 12:30 GMT and lasting throughout the day, a stream of announcements and economic indicators will be released by the American economy followed by speeches from Federal Reserve Board Chairman Ben Bernanke and a speech by FOMC member Donald Kohn about the state of the U.S. economy. With important figures such as Retail Sales and the Producer Price Index (PPI) being released, traders can expect some heavy volatility in USD trading throughout the day.

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