As the markets shows signs of recovery via a rally that makes the quarter the best in a while, the greenback has been moving the opposite direction dropping in value against other major currencies. Being the currency of choice as investors sought safety amid market and economic uncertainty, many investors flee the dollar as risk appetite comes back into the market to take advantage of cheap valuations and skyrocketing yields of corporate and high-yield debt.
In the quarter, the dollar shed 5.3% of its value against the euro and 2.66% against the Japanese yen. The British pound bounded back 14.7% against the dollar, as investors concluded the U.K. economy wasn’t hit as hard by the financial crisis as they had feared, while currencies with strong ties to commodities rallied sharply.
The dollar fell 5.5% against a trade-weighted basket of currencies tracked by J.P. Morgan Chase. It was the first decline since the first quarter of 2008.
The weakness in the currency might continue as commodities continue their surge, after a big slump since the financial crisis has begun. Currencies closely tied to commodities are some of the leaders in the group, as oil in particular has rallied from its crisis-low in the low-30s to around 70 a barrel.
Many people also believe the need to issue the government’s deficit will be another driver to the greenback’s drop in value. What may only serve as a neutralizing factor to this is the confirmation by the Chinese government lately that their reserve policy will remain stable, indicating less departure from the dollar as the chosen reserve currency.
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