Will Dollar strength on news that Bin Laden has been killed be short-lived?
*The Wall Street Journal, by Clare Connaghan, May 2, 2011
”The dollar slipped against the euro while maintaining a broadly positive tone against other major currencies in European trading hours Monday following news al Qaeda leader Osama Bin Laden has been killed.
The euro traded recently at $1.4844, compared with $1.4810 late Friday in New York. The greenback was fetching Y81.39, compared with Y81.12, while the euro was at Y120.78 from Y120.28 and the U.K. pound was at $1.6688 compared with $1.6703.
The dollar was steady in European trading after strengthening in Asia after U.S. President Barack Obama confirmed Osama bin Laden has been killed in a U.S. operation in Pakistan, ending a decade-long hunt for the architect of the Sept. 11, 2001 terror attacks that left 3,000 people dead.
‘The immediate reaction was positive for risk . . . and moderately positive for dollar,’ said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets in London.
But with liquidity thin due to markets in Singapore, Hong Kong and London being closed, it is difficult to assess what the overall impact could be in currency markets, he said.
‘In reality, we suspect that this news is unlikely to be game-changing for risk premia and in particular would note that their was no strong tendency for U.S. equities to underperform the rest of the world in the wake of 9/11, suggesting limited scope for a narrowing in the relative risk premium now and little relief for dollar,’ he added.
For now, the news has helped the dollar maintain a mostly firmer tone in Monday’s trading session, but it might not be long before economic issues and the prospect of prolonged loose monetary policy and lingering debt problems in the U.S. weigh on the buck once again.”
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