Euro strengthens on improved risk appetite

The euro strengthened against the dollar yesterday, as risk appetite returned to markets following two days of investor flight to safe-haven currencies. Although much worse-than-expected annualised US GDP figures for the first three months for 2009 capped some of the single currency’s gains early in the afternoon, the euro remained strong throughout the day to finish the day up at $1.3271. Led by the biggest fall in US export demand in 40 years, a staggering 30%, the US economy contracted by 6.1% in the first quarter of this year. Nevertheless, appetite for the perceived riskier currencies remained in the market, buoyed by better-than-expected consumer confidence and house price data released in the US on Tuesday. The euro’s gains were also aided by an encouraging survey released by the European Commission, which showed that economic sentiment in the region improved to 67.2 points in April from 64.7 in March, much higher than the 65.2 points analysts had predicted.

Investor appetite for the riskier euro came despite news of the first death outside of Mexico from swine flu and also reports of more suspected cases around the world. After two days of swine-flu related falls, European equity markets rose yesterday as positive economic data, together with a feeling that there may have been an overreaction to the swine flu outbreak, eased investors’ nerves, further extending the euro’s gains against the greenback. In addition, speculation surrounding what the Fed would announce last night following their two-day monetary policy meeting affected markets, although, as expected, the US central bank kept their interest rate on hold at virtually zero and promised to continue with their purchasing of long-term government debt to expand the money supply as planned – a process known as quantitative easing. Investors took this news positively, concluding that the central bank’s current policies must be tentatively getting the US economy out of recession, and therefore they continued to buy into the euro yesterday evening.

In early trading today the euro has continued its rise against the greenback, as risk appetite improved. However, there are some big announcements in both the eurozone and America today which could move the market. In the US, March’s Personal Spending and Personal Consumption Expenditure Deflator data is released at 13.30 BST, as is the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index. In addition, at 14.45 BST, April’s Chicago Purchasing Managers’ Index is out. In the eurozone, the Unemployment Rate for March is released by the European Monetary Union at 10.00 BST.