Risk aversion sees dollar stregthen over euro

The dollar strengthened over the euro by 1.23 cents yesterday to close at the 1.2720 level, as risk aversion spread amongst investors and the dollar was heavily bought as a safe haven. An address by President Obama late on Tuesday did little to reveal how his administration planned to stabilise the economy. Figures released also showed that existing home sales fell by 5.3% in the US in January, which led to a fall in the price of stocks and promoted risk aversion. The euro's position was also undermined by news that Germany's economy contracted by 2.1% in the fourth quarter of 2008.

In today's trading the euro has come back as risk aversion abated after US stocks pared their losses in yesterday afternoon's trading. Also, German consumer confidence, as measured by Gfk, was shown to have improved this morning, and the rate at which German unemployment is increasing also slowed. Later today Consumer, Economic and Industrial Confidence data is released in the eurozone, whilst in the US, Durable Goods Orders, Initial Jobless Claims and New Home Sales figures are announced. Also taking place in the US today is the release of Barack Obama's budget report, which will give investors a clear indication about the future spending plans of his administration.

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