Euro Too Risky as Dollar Moves Up

Posted May 29, 2010

During the currency trading session on Friday, risk prevailed as the worry for investors. The move to the dollar happened again.


The US dollar increased for its longest string of monthly against the euro during the Friday currency trading session. It has not had this number of daily gains against the euro since 2000. The move away from the euro is due to investor concerns about the large amounts of debt in the euro zone as well as the fiscal cutbacks that are so significant that need to occur throughout Europe. The move away from riskier assets like the euro forced investors to turn to the safe haven of the US dollar.

Spain Credit Rating

The situation only worsened on Friday for the euro zone when Fitch Ratings, a national credit rating agency, downgraded Spain’s foreign and local currency issuer default ratings to AA+ from an AAA rating.

This instantly caused the euro to fall, and by the end of the trading session, the euro fell from US $1.2356 as of Thursday to US $1.2144. The euro touched a four year low on the 19th of May, when it hit US $1.2144. Taking into consideration that the month is over for North American traders, as Monday is a national holiday in the United States and no trading will occur, the euro has fallen at its highest level in on month since January of 2009. This is the longest string of a falling euro since the spring of 2000. The currency was introduced in 1999. In the last six months, the euro has fallen by 18 percent.

US Dollar

As traders moved away from the euro, they bought the US dollar. The dollar benefited from risk aversion throughout the month, as did the Japanese yen. The ICE dollar index showed that the US dollar improved from 86.305 as of late Thursday to 86.611 as of Friday’s session. This index measures the US dollar against six other major currencies. The index also posted the biggest monthly again at the close of business since October of 2008.

Yen Fall

The US dollar did not change much during the trading session against the yen. However, it did give up some of its against in the Asian trading session as weak economic data out of Japan was released. The US dollar was at Y 90.85 as of late Thursday but moved to Y 90.91 during the day’s trading.

During the month of May, the US dollar fell from a high of Y 94.01. This is the largest slide for the dollar since the month of November. The reasoning behind this is simply risk aversion. The yen simply benefited better as investors traded to safer currencies.

Against the yen, the euro moved from Y 112.24 to Y 111.87 during the day’s trading session. Information out of Japan showed that the country saw a deflation during April, which other data released did provide some weaker information. Employment conditions in the country worsened.

The British, United States and Japanese markets will be closed on Monday in observance of national holidays.