The Dollar gained nearly 130 pips since opening today as investors look to positive news ahead of Barack Obama's inauguration. The U.S. currency has strengthened against the EUR in recent months. However, it has failed to stabilize in recent weeks, as investors remain undecided on the future of the EUR/USD pair. The New Years Eve close of 1.3987 is a benchmark for the U.S. Dollar for this year as many people are wondering what the future of the currency is as the U.S. Interest Rates are at a historic low.
The Interest Rate that put U.S. rates at 0.25% in December was followed by cuts from the Euro-Zone, Britain and many other countries around the world. The resulting cuts however helped the Dollar hold its value as the other countries comparatively have used similar monetary tactics since the start of the financial crisis.
Many analysts believe that the Pound Sterling is likely to stabilize around the 1.45 rate against the USD in the coming months. However, nothing prevents the pair from going to the 1.38 level. This comes about as Britain has been very badly affected by the global financial crisis. Additionally, several months ago the GBP/USD pair was trading around the 1.95 level. The Pound at this high level against the greenback was obviously overvalued. The impact of the recession on Britain has therefore helped the cable tumble against the Dollar in such a short period, as it was overvalued too.
Today there is likely to be a fair amount of movement in the Forex market as traders and banks return to trading. By the end of the trading session there may be rapid movements in the Forex market as the market is likely to react on today's economic developments as they unfold. Look for volatility in the Dollar before and after the release of the ISM Manufacturing PMI at 3pm GMT. Also, traders are recommended to pay close attention to the correlation between the Dollar and the volatility in the price of Oil as Friday trading unfolds, and traders act on the developments coming out of the War in the Middle East.