Wednesday, December 10, 2008

Increased Investor Risk Appetite Pummels U.S. Dollar

Although the bailout for the auto industry seems to have given some investors an increasing risk appetite, and thus has weakened the U.S. dollar, it is far from a done deal, and Republicans are rightly threatening to vote the corporate welfare bill down.

The fickleness of investors and the market makes this the type of story that can change from day to day, and has.

Both the euro and British pound were up against the U.S. dollar today, with the euro rising 0.7 percent against the dollar to $1.3016, and the pound gaining 0.2 percent to $1.4788.

In the afternoon, the dollar index (DXY) fell by 0.5 percent to 85.48.

With the yen also being considered valuable to wary traders, it also suffered today, even falling against the U.S. dollar to 92.59, a drop of 0.3 percent. The dollar isn't far off a 13-year low against the yen; if it goes below 90.90 yen it'll reach that level.

There is considerable risk the dollar will plunge further if the Federal Reserve cuts its benchmark fed funds rate next week from the current 1 percent. Many think it'll cut the rate to 0.5 percent at that time, putting downward pressure on the greenback.

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