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22 Jun - Fundamental
The dollar gained Tuesday as optimism about China's decision to let its currency float more freely faded and investors flocked to the safety of the greenback.
What prices are doing: The dollar rose 0.4% against the euro to $1.2266 and jumped 0.3% versus the British pound to $1.4707.
Against the Japanese yen, the dollar fell 0.5% to ¥90.66.
What's moving the market: Over the weekend, China announced it would let its currency, the yuan, trade more freely.
The news initially boosted stocks and pressured the dollar as investors became more confident in the global economic recovery.
But the dollar recovered losses midday Monday and rallied early Tuesday as investors recognized that China's move would be gradual and wondered how positive a higher yuan would actually be for the economy.
«The market got excited, but it has lost its enthusiasm and what we're seeing now is a hangover,» said Borris Schlossberg, a currency strategist at Forex Capital Markets.
«The appreciation of the yuan is going to be very gradual, and at the same time, investors are realizing that there's not necessarily a direct correlation between the yuan's appreciation and global growth» he added.
As a result, «risk currencies» such as the euro and the pound, which investors tend to flock to when they are feeling bullish about the economy, are losing ground, while the safe haven dollar is becoming increasingly attractive.
Economy: Weak U.S. housing data due Tuesday could also push the dollar higher, said Schlossberg.
The National Association of Realtors is scheduled to release its report on existing home sales after the market open.
Sales are expected to have risen to a seasonally adjusted annual rate of 6.1 million units in May, up from a 5.77 million unit rate in April, according to a consensus of economists surveyed by Briefing.com.
Outlook: Schlossberg said he expects the dollar to remain steady during the second half of the year as investors gauge the health of the global economy.
And if growth in the U.S. slows more than expected, the dollar will be the beneficiary.
«I think that global growth will probably slow down in the second half of the year and be more muted than people think,» said Schlossberg. «The U.S. is not really having any kind of real consumer revival and Europe is quagmired in massive austerity measures, so this will be enough to maintain positive momentum for the dollar.»
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