Dollar Trades Lower As Risk Aversion Recants Bullish Outlook

Dollar Trades Lower As Risk Aversion Recants Bullish Outlook
Despite a quiet economic calendar, the US dollar was on the retreat Tuesday against most of its major counterparts. For those majors that weren’t caught up in cross fundamental currents, the greenback selloff was partly a carry through on the single currency’s ongoing reversal of last week’s strong rally. There was also a more active component to the decline in the form of a general souring in risk appetite – but more specifically, American risk. Ben Bernanke and his fellow Federal Reserve policy makers have made a remarkable effort to head off a recession and stabilize the broad financial markets with a cumulative 325 basis points of rate cuts and unusual means for injecting liquidity into the frozen credit markets. In fact, after last week’s quarter point cut from the FOMC, the market is pricing in an 86 percent chance that the Fed Funds rate will be left unchanged at 2.00 percent. However, recent data has offered little reason to suspect financial conditions are improving nor that the economy would avoid a contraction in the second quarter. Today, an article on Bloomberg News quoting a study from Jupiter eSources LLC revealed bankruptcy filings among businesses rose 49 percent in the year through April – the most in a year. With individual filings included, the rise over the same period measured 31 percent. This highlights an often overlooked concern: that the Fed’s efforts haven’t been passed through to the consumer – a necessity if growth is to recover. Looking ahead to tomorrow fundamental activity picks up modestly with March pending home sales and credit spending. Both indicators have little market moving precedence.