Dollar rebounds from lowest level since July 2008

The U.S. dollar rebounded late Monday from its weakest level since July 2008 as traders weighed news of al Qaeda leader Osama bin Laden’s death against a backdrop of expectations that the Federal Reserve will continue its easy monetary policy.
 
The dollar index DXY +0.14% , which measures the U.S. unit against a basket of six major currencies, was at 73.053, up from 72.960 late Friday. Earlier, it touched a low of 72.722, a level not seen since July 2008. Read more on military attack that left bin Laden dead.

“The dollar will likely find little lasting enthusiasm” from news of bin Laden’s death, said John Kicklighter, currency strategist for DailyFX.com, in emailed comments.

“The implications here are rooted more in politics than they are in economics or investor sentiment,” he said. “Removing the symbolic head of global terrorism may ease the market’s anxiety moderately; but that hasn’t been a primary concern for the investing masses recently. The U.S. dollar’s troubles remain.”

“Appetite for yield is encouraging American investors to invest abroad, the Fed has offered no time frame for the eventual withdrawal in stimulus and there has been little effort to strategize a reduction of the nation’s record budget deficit,” he said.

During the Asian session, the dollar had been trading lower before the reports that bin Laden was killed at a mansion outside the Pakistani capital Islamabad.

After the news, the dollar index touched a high above 73 overnight, then traded lower for much of the U.S. session only to move back above 73 again before the end of trading for the U.S. stock market.

Taliban to launch spring offensive

The NATO-led coalition in Afghanistan says they are prepared for a surge in Taliban attacks.

But the resolution of one uncertainty in the Middle East has opened the dollar to another — the potential for retaliation, in the form of another terror attack, by al Qaeda, said Kathy Lien, director of currency research at GFT.

“The risk of another terror attack has capped the rally in the U.S. dollar,” she said in a note to clients.

Meanwhile, “the dollar is being directly affected by the [Federal Reserve’s] stimulus programs,” said Keith Springer, president of Springer Financial Advisors in Sacramento, Calif. “Although [the second round of quantitative easing] ended, we still have QE Mini-me.”

Plus, with first-quarter growth in U.S. gross domestic product initially forecast at 1.8%, the chances of another formal quantitative-easing program are increasing, he forecasts — and that should push the dollar lower.
Data weigh

Adding to pressure on the dollar, the Institute for Supply Management said its manufacturing gauge dipped to 60.4% last month from 61.2% in March. Read about the manufacturing data.

The ISM’s weaker reading for U.S. factories validates the need for easy monetary policy, said Lien.

And, with the “sentiment in the market so heavily skewed toward selling dollars, economic data will not be enough to turn the dollar around,” she noted.

By late Monday, the euro and British pound traded slightly lower against the dollar.

The euro EURUSD -0.0067% traded at $1.4819, from $1.4826 in late North American trading on April 29, while the British pound GBPUSD -0.3472% traded at $1.665, down from $1.670.

The Australian dollar AUDUSD -0.2734% climbed above $1.10 to hit a 29-year high against the U.S. dollar, before easing back to $1.0933.

The dollar USDYEN +0.1110% bought 81.25 Japanese yen, up from ¥81.09 in North American trading late Friday.

Source