Posted October 23, 2010
Investors move away from risk. Dollar improves as safe option prior to G-20.
During the trading session on Friday, investors moved towards safe ground with the upcoming G-20 meeting upcoming. The US dollar took back many of its losses from the week earlier. The US dollar is considered a safer option over the riskier euro and commodity based currencies.
The G-20 meeting of financial ministers and central banks is likely to discuss currencies. The meeting is likely to include discussions over exchange rate imbalances. It is not likely that there will be a binding agreement at the end of the session, but some investors are concerned about the likelihood of these changes. Many investors pared its positions in riskier assets in case there is some type of currency agreement that surprises investors.
Investors have long held that the US dollar has perceived strength, and when there is the potential for a shakeup, it becomes important for the investors to turn towards the US dollar over the euro and other commodity based currencies. The weekend meetings of the G-20 nations could put focus on those imbalanced currencies.
A proposal that is backed by South Korea and the United States might provide better support if any caps on deficits and surpluses were nonbinding. The agreement would allow the globe’s largest industrial and developing economies to agree to limits on external imbalances. This would help to rebalance the global growth and push investors away from the over reliance the currencies have towards the US consumer buying goods from Asian countries and other large exporting countries.
By the Numbers
During the trading day on Friday, the US dollars rebound helped to pull the US dollar higher against the Japanese yen. This came as the US dollar had fallen in earlier trading on the belief that the Japanese government is less likely to intervene in the markets to hold back the value of the yen.
By the end of the trading day on Friday, the euro moved from US $1.3922 as of late Thursday barely changing at US $1.3923 for the day. The euro moved from Y 113.22 to Y 113.46 by the end of trading on Friday. The US dollar moved from y 81.35 to Y 81.41. The US dollar moved from CHF 0.9679 as of late Thursday to CHF 0.9787. The UK pound moved from US $1.5706 to US $1.5667. The ICE Dollar Index moved the dollar from 77.453 to 77.494 for the day.