Dollar rises versus euro, pound on European bank concerns


The dollar rose early Monday against the euro, pound and yen, but for all the wrong reasons -- a belief that more banks in the U.K. and Europe will face pressure and Europe's economy will slow further.

The dollar rose almost 2 cents versus the euro to $1.4367 and 3 cents versus the British pound to $1.8035. The dollar also rose about one-quarter yen to 106.25 versus the Japan's yen.

Currency Trader Andrew Resnick said the dollar's merely modest rise against the yen is the telling indicator in this currency market. Typically, a dollar rally would spark a large move up versus the yen as well, not just a minor increase. The fact that it hasn't indicates that institutional investors are paring-back their carry trades on concern the U.S. Congress' $700 bailout / rescue bill may not be enough to check the financial crisis, leading to slower growth in Europe, he said.

In a carry trade, investors, especially institutional investors, borrow funds in a country with a low interest rate (or borrowing cost) such as Japan [the yen], and buy assets in a country where returns are higher. The investment can take many forms including stocks, bonds, funds, or even the higher-interest currency itself, such as the British pound.


Another indicator that institutional investors believe there's more pain to come for regional and global banks, and slower growth: a drop in the British pound versus the yen -- a key carry trade. The pound fell more than 3 yen to 191.28 yen early Monday.

"That's another indication of investors bringing money home, reducing leveraged investing. De-leveraging has been occurring for more than a year, and so long as it's gradual, the financial system can handle it," Resnick said. "But it's definitely a bearish sign regarding GDP growth in Europe and Asia. Resnick added that he's presently flat, or had no open currency trading positions.

Forex / Economic Analysis: The U.S. Congress' $700 billion bailout / rescue package represents the first step in a long process of recovery and reform. The rescue will help stabilize credit markets and restore investor confidence, but investors should not view it as a cure-all. More fiscal stimulus most likely will be needed, particularly if private investment is inadequate to jump-start GDP growth.
Symbol Lookup
IndexesChangePrice
DJIA+49.5712,850.80
NASDAQ+24.322,928.20
S&P 500+7.731,350.37

Last updated: February 13, 2012: 10:14 AM

Hot Stocks

General Electric

18.955+0.08(+0.42)

Alcoa

10.42+0.13(+1.26)

Apple Inc

501.15+7.73(+1.57)

Google Inc 'A'

613.72+7.81(+1.29)

Bank of America

8.275+0.205(+2.54)

Wal-Mart Stores

61.92+0.02(+0.03)

Exxon Mobil Corp

84.06+0.26(+0.31)

Ford

12.63+0.19(+1.53)

Citigroup

33.54+0.615(+1.87)

IBM

192.77+0.35(+0.18)

Yahoo

16.175+0.035(+0.22)

Starbucks

48.98+0.16(+0.33)

Microsoft

30.695+0.20(+0.66)

Home Depot

45.69+0.36(+0.79)

DailyFinance Headlines

Benzinga Headlines

TheFlyOnTheWall.com Headlines

BioHealth Investor Headlines

WalletPop Headlines

DailyFinance BlackBerry App

My Portfolios

Track your stocks here!

Find out why more people track their portfolios on AOL Money & Finance then anywhere else.

BloggingStocks Partners

More from AOL Money & Finance

BioHealth Investor Headlines

Page Loaded in 1329146099608 ms.