The U.S. Dollar is trading lower across the board as trader demand for risky assets soared following the news out of Europe. The release of the bullish industrial report combined with Bernanke’s dovish tone sends a signal to investors that the European Central Bank is moving closer to a possible rate hike while the Fed is still struggling with the possibility of a double-dip recession. Furthermore, the bullish Euro Zone numbers is a sign that the ECB is likely to refrain from applying additional stimulus measures while the weakening U.S. economic data means that the Fed is likely to consider a second round of quantitative easing.
The strong rise in the Euro is spreading to other currency markets as traders position themselves for a weaker U.S. economy. Traders are demanding higher yielding assets as they anticipate the Fed leaving interest rates lower for a much longer period of time than previously estimated. U.S. Treasury Bond traders are pricing in the possibility of a Fed rate hike for September 2011. The bullish news about the Euro Zone and the dovish outlook for the U.S. economy is especially bullish for commodity-linked currencies.
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