Investors are rebalancing their portfolios based on a less monochromatic view of the world economy.
They have swung from being massively bearish on U.S. financial and economic prospects in the middle of 2009 to being massively negative on European debt conditions in the second quarter of 2010 to having a more equivocating view of economic prospects.
Europe is doing better than many thought it would. The United States and China are slowing down as had been expected.
While some worry this is the beginning of a new recession, the consensus in the mainstream market appears to be that it is instead an inter-cyclical slow down, following the post recession recovery.
Investors are seeking to balance their assets globally, which means that they are not favoring any one currency over others.
One can view the glass as half empty or half full. You can say that investors are seeking to spread their assets across geographic regions and currencies because they expect better returns in most countries in the next few quarters.
Or, one can say that investors are equally uninspired by economic prospects in the major industrialized nations, and so are diversifying their risks to minimize their pain. The result for currency exchange rates is the same.
