Dollar down on improved risk appetite

The euro strengthened against the US dollar yesterday amid renewed risk appetite, as US stocks made their strongest gains in a month after Federal Reserve Chairman Ben Bernanke said that troubled US banks may not have to be nationalised. Bernanke did warn that the success of the $787 billion stimulus package would be essential to ending a downward economic spiral, but suggested that if the stimulus plan is successful it could begin to pull the US economy out of a severe recession by the end this year.

German GDP figures released this morning showed the German economy shrank by 2.1% in the fourth quarter of 2008, its largest contraction since the country was reunited in 1990. The fall marked the third quarter of economic decline in a row and suggested that Germany was in the midst of its worst recession since the Second World War. However, the data has had little impact on the euro this morning, as it confirmed figures released earlier in February.

There are no further major releases due from the eurozone today. In the US MBA Mortgage Applications and Home Sales data will be released this afternoon. Bernanke will also be giving a Monetary Policy Report to the US House Panel at 15.00 GMT today.

EURUSD: 1 week chart. Click on graph to enlarge.