The dollar fell slightly against the major currencies on Monday as signs of a sustained economic recovery and reduced concerns of a default in Dubai curbed demand for the U.S. currency as a refuge. The emirate's move initially prompted investors to sell the dollar and pushed up global equities on improved risk appetite.
The dollar slipped slightly against most of its major counterparts on Monday after Dubai's announcement it had received help from Abu Dhabi to repay its debts. This bolstered risk appetite and eroded some of the U.S. currency's safe-haven appeal. By yesterday's close, the USD fell against the EUR, pushing the oft- traded currency pair to 1.4647. The dollar experience similar behavior against the GBP and closed at 1.6302.
The currency market's bent to sell dollars on improved risk appetite, contrasted with last week when strong U.S. economic data boosted risk sentiment to the benefit of stocks and the dollar, and have bolstered the view that the Fed may have to act sooner than expected to tighten monetary policy. Investors were also watching to see whether a year-long trend in which the dollar weakens on strong U.S. data was starting to break down.
Moreover, markets await more details from the Federal Reserve, which wraps up its last policy meeting of the year on Wednesday. Investors expect the central bank to keep its benchmark interest rate at a historic low level of near zero for the time being, but there is some concern that rates could rise sooner than previously thought as the economy improves. Higher interest rates or the expectation of higher interest rates in the near future can boost a currency as investors transfer their funds to higher yielding currencies.