FOREX-Dollar near 1-year low as stocks, commodities rise

The U.S. dollar fell to its lowest in almost a year on Tuesday after gains in global stocks fed into renewed risk appetite as trading volume picked up at the end of summer holidays in the United States.

Some analysts said the U.S. dollar may resume seasonal declines as volume increases after a brief period in which the greenback rose following upbeat economic indicators.

A rally in gold prices above $1,000 and concerns over the dollar's long-term status as the world's reserve currency, sparked by a United Nations report on Monday, also undermined demand for the greenback. [ID:nL7696421].

The dollar slumped to its lowest in almost a year against a basket of major currencies while the euro broke above a key options barrier at $1.4450 EUR=, traders noted.

G-20 Pledge Contributes to Forex Rally

The U.S. Dollar was trading weaker at the midsession in a continuation of the rally that started last night. Stronger equity markets are helping to fuel a greater desire for higher risk assets. The G-20’s pledge to continue providing stimulus is most likely the biggest factor contributing to the rally. The thought of pumping more money into the global economy has triggered renewed demand for equities and commodities with metals leading the way. Traders are also reacting to renewed questions about the role of the Dollar as the world’s number one reserve currency.

The EUR USD made a new high for the year in a move that fueled a strong breakout to the upside. German economic reports this morning offset each other, leading to the belief that this rally is being fueled by a desire for higher yielding assets. This morning’s reports showed a rise in German exports but weakness in German industrial production.

An unexpected rise in British industrial production along with greater demand for higher yielding assets is helping to support the rally in the GBP USD. This market has now regained 50% of its August break. Some of the rally could be contributed to position squaring ahead of this week’s Bank of England meeting. In light of the recent improvements in the economy, traders are curious as to whether the BoE will make adjustments to its quantitative easing program.

The USD JPY is under pressure as a desire to hold Japanese Bonds over U.S. Bonds is fueling demand for the Yen. The carry trade does not seem to be a factor today even though U.S. equity markets are trading higher.

China's economic aggregate ranks third in the world

The euro rallied sharply versus major rivals Tuesday in New York as global stocks gained, adding to risk appetite. The European currency moved to an 8 1/2-month high against the struggling dollar and also hit near-term bests against the yen and pound.

German exports increased for the third month in a row in August on rising global demand. The better-than-expected export growth helped the trade surplus to increase surprisingly, strengthening recovery hopes.

The euro surged to 1.4534 against the dollar, its highest level since mid-December. The greenback saw notable weakness across the board.

Former Federal Reserve Bank Chairman Alan Greenspan said Monday that banks in the U.S. need to hold more capital on their balance sheets and that the liquidity infused into financial systems by the world's central banks poses an inflation threat.

The euro climbed to a six-day high of 0.8787 versus the British pound. The rise took the European currency away from a 10-day low of 0.8703 from last week.

UK's Office for National Statistics report showed that manufacturing output grew 0.9% in July from June. Economists had expected only 0.3% monthly increase for July. Meanwhile, industrial output recorded a monthly rise of 0.5% in July.

The euro inched up to a weekly high of 133.85 against the Japanese yen. The European currency has been trending to the upside since late last week.

Japan's current account surplus narrowed in July from the previous year, mainly due to a fall in the income surplus and the widening of the services deficit, an official report showed today. The Ministry of Finance said the current account surplus dropped 19.4% year-on-year to 1.26 trillion yen from 1.57 trillion yen in the previous year. The surplus was also lower than 1.45 trillion yen surplus estimated by economists, although it increased from June's surplus of 1.15 trillion yen.

In Germany, exports rose by a calendar and seasonally adjusted 2.3% month-on-month in July, slower than a downwardly revised 6.1% increase in June, but larger than the 1.2% rise expected by economists. Annually, exports slipped 18.7% to EUR 70.5 billion.

Meanwhile, German industrial output dropped 0.9% month-on-month in July, the Federal Ministry of Economics and Technology said Tuesday. That was the first fall in three months.