EU Optimism Boosts Demand for Higher Yielding Assets, as USD Falls against Major Currencies

A wave of optimism dominated global financial markets on Monday, where traders were already encouraged by the unexpected drop in U.S. unemployment reported last Friday, while optimism that EU leaders could be able to reach a resolution to the debt crisis in Europe, boosted confidence in markets and supported demand for higher yielding assets, as the U.S. dollar fell against major currencies, while equities, commodities, and major currencies rallied.

Investors are optimistic that EU leaders could reach a plan to ease the euro zone debt crisis at this week’s EU summit, while the ECB is expected to loosen its monetary policy as well in order to help in easing the deepening debt crisis. Moreover, reports signaled that Germany and France have reached an agreement on reforms to solve the debt crisis and prevent another situation in the future, which also supported confidence in markets.

Nonetheless, the U.S. ISM services index signaled that activities in the services sector eased in November below projections, where the ISM services index eased to 52.0, compared with the prior estimate of 52.9 and below median estimates of 53.9. Nevertheless, investors were focused on the developments in Europe, which overshadowed the worse than expected ISM services index.

The U.S. dollar fell sharply against a basket of major currencies on Monday, where the U.S. dollar index was trading at 78.23, compared with the opening level at 78.61. The Euro gained against the Dollar, where the EUR/USD pair traded at $1.3459, compared with the opening level at $1.3416, the British Pound gained strongly against the Dollar, where the GBP/USD pair traded around $1.5699 compared with the opening level at $1.5605, and the U.S. dollar fell against the Japanese Yen, where the USD/JPY pair was trading around 77.82, compared with the opening level at 78.09.

Stocks in the United States rallied by opening on Monday, as the Dow Jones Industrial Average was up by nearly 1.20% to trade around 12,165, while the S&P 500 index was up by nearly 1.60% to trade around 1264. European stock indexes were also higher before closing on Monday, where FTSE 100 was higher by nearly 0.45% to trade at 5577 and the DAX was up by nearly 0.60% to close around 6116.

Gold prices fell to trade now around $1740 an ounce and crude oil prices gained to trade around $101-$102 a barrel.

One thought on “EU Optimism Boosts Demand for Higher Yielding Assets, as USD Falls against Major Currencies”

Leave a Reply

Your email address will not be published. Required fields are marked *