BRIC Summit Leaves Dollar Intact As Reserve Currency

Dollar Regains Lost Ground
The meeting of the BRIC (Brazil, Russia, India and China) nations has come and gone leaving currency exchange rates largely unaffected. Recent remarks by Russia’s president questioning the dollar’s reserve status caused the dollar to fall on Tuesday but on Wednesday the dollar regained some lost ground. Trading has been somewhat erratic as markets struggled to find direction and remained uncertain whether the dollar’s decline was over or had a little further to go.

BRIC Summit Fails to Address Dollar’s Reserve Status
The failure of the BRIC summit to issue any statements regarding the dollar slowed the dollar selling caused by the Russian president’s remarks on Tuesday. Masafumi Yamamoto of Royal Bank of Scotland stated, “At the end there was no strong comment to play down the role of the dollar.” Asian stocks were down as investors tried to make sense of conflicting US economic data causing many to doubt how fast the US recession is easing.

Risk Aversion Surfaces
Some risk aversion has surfaced sending the dollar to yen exchange rate to 96.00 and the Aussie dollar to a three week low of 76.00 against the yen. In early trading on Wednesday the euro to dollar rate rose 0.3% to $ 1.3883. Better than expected inflation data from the US was taken by forex investors as another sign that recovery is underway paring safe haven demand. May price data boosted expectations that US interest rates will remain low, Brian Dolan of Forex.com stated, “We’re seeing dollar weakness because the idea is that inflation is not pretty evident right now and that is seen as a positive in terms of the growth outlook and risk appetite.”

Currency Markets ‘Lack Conviction’
The Q1 U.S. current account deficit narrowed adding to market optimism and affecting currency exchange rates. Some experts said currency markets lacked conviction leaving investors and traders unsure of how to trade the dollar due to conflicting sets of US economic data.