Forex traders involved in US Dollar trades were no doubt shocked yesterday by the sudden leaps and bounds made by the greenback throughout the trading day. Most analysts are explaining this occurrence on the massive surge in risk aversion which entered the market this week.
Against the Canadian Dollar, the greenback jumped back above parity and is currently trading at 1.0250. The EUR suffered a severe setback, with the EUR/USD dropping below 1.3000 for the first time since April 2009. The pair is currently trading near 1.2950.
Analysts point to the apparent doubts investors have over the ability of the Greek bailout to perform its task well enough to actually prevent the country from falling into default. Since financial and employment woes seem to be mounting in Europe, uncertainty has gripped most equity markets, resulting in a mad dash to safety. The USD has been the primary outlet for this risk aversion.
As such, the markets appear to be trading in what is called abnormal market conditions. What this means is that positive American economic data may actually put downward pressure on the Dollar instead of upward pressure.
The simple explanation is that the USD's recent strength is a result of investor concern regarding other assets, but if positive figures show growth in various aspects of the economy, investors may feel safe in pulling some funds out of safe-havens like the greenback and putting them back into stocks or other riskier assets