US Dollar Slumps on Risk Appetite, Higher Gold

US Dollar is slumping today as risk appetite makes an appearance. Gold prices are also heading higher, and that is putting some downward pressure on the greenback, as it appears that gold might not be a safe haven any longer, and it is ready to resume its inverse relationship to the US dollar — at least for now.

Optimism is making a showing on the Forex market today, brought along by the latest news out of Europe. Nicolas Sarkozy and Angela Merkel are talking about a plan to recapitalize banks, and even giving themselves a deadline three weeks away. This news is renewing hopes that the sovereign debt crisis in the eurozone will be contained.
Gold prices are putting downward pressure on the US dollar as well. Gold is heading higher as optimism returns, and physical gold is in high demand as China returns to the fray after last week’s holiday. (Interestingly, yuan has hit a high against the US dollar.)
Forex traders and other investors are looking for higher yield assets right now, ready to take on some risk. As a result, the US dollar is no longer in demand. However, there is still market volatility, and anything could happen. Should a eurozone debt crisis solution fall through, or more evidence of global economic slowing emerge, the US dollar could easily rise again as a safe haven.
At 14:03 GMT, EUR/USD is higher at 1.3636, up from the open at 1.3391. GBP/USD is higher at 1.5670, up from 1.5560, and USD/CAD is down to 1.0265 from the open at 1.0390.

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