The Dollar rose against Japanese Yen and Swiss franc on Monday as investors snapped up riskier assets such as stocks, encouraged by a dip in oil prices and unexpectedly strong earnings from HSBC. The investors' appetite increase for risk revived interest in carry trades, helping to lift the high-yielding Euro, Sterling and Australian and New Zealand dollars against the US currency. In carry trades, investors borrow against the Yen or other low-yielding currency to buy assets offering higher returns.
Yesterday, UsdJpy was trading up 0.96% at 103.87. UsdChf was up 0.36% at 1.0449. EurJpy jumped 1.34% higher to 161.35, helping the euro zone currency to erase losses against the Dollar. EurUsd last traded up 0.28% at 1.5532. Analysts said there is a strong correlation between the EurJpy and Stocks, and gains in the currency pair tend to feed through to EurUsd. Traders also said the Euro's advance against the Dollar did search for stop-losses above the 1.5500 area amid thin liquidity, with most European markets closed.
US and global stocks markets were cheered by news that European banking heavyweight HSBC posted unexpectedly strong Q1 earnings and a fall in oil prices. Investors will watch a big slate of economic data on Tuesday, especially April US retail sales, as well as speeches by Fed officials for clues on whether the US central bank will cut benchmark interest rates again next month. Chicago Fed President Charles Evans said the consumer was under a lot of stress and the economy faced downside risks.
Short-term interest rate futures, which track market expectations for Fed monetary policy, show an 86% chance that the Fed will keep benchmark lending rates unchanged at 2% when it next meets on June 25. At the same time, some signs that European growth is stumbling has stirred speculation the European Central Bank could edge towards trimming rates for the first time in nearly a year. This could boost the Dollar, whose appeal has been undermined by the Fed's aggressive rate cuts.