The US dollar rallied strongly for the first day in five, as news of substantial foreign investment in the downtrodden domestic banking titan Citigroup lifted hopes that international investors would seek to buy recently depreciated American assets. The currency shrugged off a clearly disappointing Conference Board Consumer Confidence report and continued its advance into afternoon trading, with a rally in the downtrodden Dow Jones Industrial Average lifting hopes for the broader economy. The dollar posted an especially pronounced rally against the Japanese Yen, which was the day’s largest decliner on the broad improvement in global risk sentiment.

News that the Abu Dhabi Investment Authority would buy a 4.9 percent stake in US titan Citigroup instantly lifted sentiment for the domestic currency, as investors saw potential for further sovereign fund purchases of sharply depreciated US banking shares. Soaring commodity prices have boosted gulf state coffers and sparked the creation of so-called sovereign wealth funds, with Gulf States reportedly boasting up to $1.2 trillion in reported reserves. Valued at $7.5 billion, the Abu Dhabi-Citigroup deal hardly represents an almost-negligible sum in the context of total regional reserves. As such, US traders hope that the recent downfall of key domestic stocks will encourage sovereign wealth funds to purchase significant stakes in cash-strapped banking firms.

Initial reactions to news of the Abu Dhabi investment overrode a sharp disappointment in morning US Consumer Confidence numbers, with the Conference Board reporting that economic sentiment fell to its worst levels in two years. The headline index actually printed a substantial 4 points below consensus forecasts to 87.3—just 2.1 points above the four-year lows seen in October, 2005. Indeed, there were very few positives seen in the data, with virtually all relevant sub-indices pointing to slowing domestic consumption in the months ahead. The data suggests that risks remain to the downside for later-week Personal Spending and Income reports, and there remains little hope for a substantive improvement in US economic data through the medium term.

US equity markets likewise shrugged off the dismal Consumer Confidence figures, with the Dow Jones Industrial Average posting triple-digit gains into the New York afternoon. The key index initially rallied 250 points to graze the psychologically significant 13,000 barrier, but a pullback in sentiment left the Dow just 115 points higher to 12,860. The S&P 500 index was likewise sharply higher in early trade, but the highly diversified index was only 0.4 percent improved through time of writing. The tech-heavy NASDAQ Composite fared slightly better at +0.6, but it seems as though momentum rests to the downside for US corporate shares.

A substantial jump in Treasury bond yields likewise lent the dollar support through the trading session, as the 2-year Note added a whopping 17 basis points in yield to 3.06 percent.

Antonio Sousa is a Currency Analyst for FXCM.