Only one week after the US$ hit its lowest level for 10 months, the main talking point in FX markets is whether the US currency is about to strengthen. The change of sentiment has been sparked by last week’s US payrolls report, which saw far fewer job losses in July than expected. This strengthened the view that the US is past the worst of its recession and that its economic recovery could precede that of Europe and Japan. Some traders are hesitant to call an end to the trend of US$ weakness, given that the currency’s rebound has been based on its reaction to a single piece of economic data, but if the US$ does continue to rise, it would mark a very significant development given the pattern of trading that has tended to characterize the currency markets since the onset of the financial crisis. This has seen the US$ benefit from haven demand when equities, and hence risk appetite, have fallen. In contrast, the US$ has lost ground when stocks and investor confidence have risen as investors abandon the relative safety of the US currency in search of higher returns elsewhere.
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