Dollar benefits from new optimism
Surprising quarterly results, a drop in oil prices and Bernanke's reassuring words about Fannie and Freddie cause the greenback to rise.
NEW YORK (CNNMoney.com) -- The dollar rose against the euro and yen Wednesday, signaling that investors may be starting to be a little more optimistic about the economy.
The dollar's move follows a sharp drop in oil prices, a better-than-expected earnings report from Wells Fargo and reassuring words from Federal Reserve Chairman Ben Bernanke about mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). (Full story)
The dollar increased to ¥104.87 Wednesday afternoon from ¥104.73 late Tuesday. The greenback had hit a low of ¥103.78 earlier in the day. The euro traded at $1.5817, continuing a pullback below the $1.60 mark. The euro hit an all-time high against the dollar of $1.6038 Tuesday morning before settling at $1.5912 late in the day.
The pound edged lower against the dollar, coming in at $1.9989 from $2.0057 late Tuesday.
The most important factor behind the dollar's rise has been the two-day drop in oil prices, according to Gareth Sylvester, a currency strategist with HIFX.
"The drop in oil yesterday certainly helped the U.S. dollar recover from its low against a basket of currencies," he said.
Oil dropped Wednesday by $4.14 to settle at $134.60 a barrel, bringing the two-day decline in crude futures to $10.58. (Full story)
The dollar is also benefiting from some upbeat corporate news, said Kevin Chau, a foreign currency analyst with IDEAGlobal.
"Anything positive out of the U.S. will create a jolt to buy dollars," he said, citing Wells Fargo (WFC, Fortune 500)'s and a government report that showed a higher-than-expected jump in crude inventories.
Wells Fargo reported a profit drop that was milder than anticipated and lifted its quarterly dividend by 10%. (Full story)
"Markets over the past few months have been negative on the dollar, so it's a crowded trade and markets are looking for a new theme, and that's for a dollar bull," said Chau.
He added that Bernanke's comments to Congress about Fannie Mae and Freddie Mac being "adequately capitalized" caused the dollar to "pop" a bit, but says the effect will be short lived. 
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