Dollar Falls on Increased Risk Appetite

The dollar fell broadly on Thursday as a wave of investor optimism boosted global stocks and demand for riskier assets.
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By Joe Manimbo of Travelex

NEW YORK (

TheStreet

) -- The dollar fell broadly on Thursday as a wave of investor optimism boosted global stocks and demand for riskier assets.

The greenback's biggest losses overnight came against its growth-sensitive and higher-yielding counterparts in Australia and New Zealand, with the buck nearing a one-week low against the former and a two-week low vs. the latter.

Upbeat data this week on pending home sales and expectations for a positive U.S. monthly employment report on Friday have been the catalyst behind the increase in risk appetite. Following yesterday's 2.25% rally in the

Dow industrials

, Asian shares posted their biggest gains in six months, while European stocks were on course to rise for a fourth straight session.

Despite the greenback's broadly weaker tone, it advanced to a two-week peak against the Japanese yen, another currency that tends to see its safe-haven appeal diminished when risk sentiment improves. Political uncertainty is also weighing on the yen after Japan's prime minister resigned after eight months on the job.

The Canadian dollar rose to its highest in more than two weeks against the greenback, boosted by the rebound in market confidence. The loonie is also supported by firmer oil prices of more than $73 a barrel, a gain of nearly 0.5%.

EUR

: The euro caught a break from recent selling pressure, rising modestly on Thursday on the back of rallying global equities, which spurred demand for riskier assets. Nevertheless, the single currency remains in close proximity of Tuesday's fresh four-year low against the greenback. The rise in risk sentiment Thursday helped to overshadow disappointing data from the 16 nation bloc that shares the single currency. Eurozone retail sales unexpectedly fell by 1.2% month over month in April, its biggest plunge since October 2008. Market participants had expected a 0.1% increase in April. Given the continued worries about sovereign debt in the region, the single currency is likely to stay on the defensive at least in the near term.

USD

:The ADP private sector employment report Thursday showed the creation of 55,000 jobs in May, which was below the forecast forecast for 60,000. The previous month's report was revised sharply higher, however, to show a gain of 65,000 private sector jobs from the 32,000 that was originally reported. U.S. weekly jobless claims fell by 10,000 to 453,000 from 463,000. Investors had expected the latest claims figure to dip to 450,000. The dollar kept mostly on the defensive following the two reports, which so far have not been enough to derail the overnight optimism that is curbing demand for lower-yielding, safe-haven assets such as the buck. U.S. factory orders and the Institute for Supply Management's service-sector index were both due out this morning at 10 a.m. EDT.

GBP

: During the overnight session, the pound rose to a three-week high against the dollar as improved market sentiment boosted the U.K. currency. However, the pound relinquished some of its gains after U.K. data failed to meet expectations. Britain's services sector expanded to 55.4 in May, just under the 55.5 forecast but a tick above the 55.3 reading in April. Concerns about cuts in public spending by the new coalition government were seen as dampening new business growth and hiring.

JPY

: The Japanese currency fell broadly for a second straight day, hitting its lowest level in two weeks against the U.S. and Canadian currencies. The rebound in risk appetite added to the headwinds facing the yen, which also include political uncertainty. Japan's prime minister stepped down yesterday after only eight months in office. The person most likely to succeed Yukio Hatoyama as prime minister is the current finance minister Naoto Kan, a noted dove, or someone viewed as preferring a weak currency as a way to lower the price of Japanese exports.