The US dollar kicked off this week on a better note as rising risk appetite strengthened the US dollar against most of the major currencies – helping to consolidate last Friday’s losses. As a result, the US dollar picked up the biggest gains against the lower yielding Yen ahead of the BoJ rate decision tomorrow, and was closely followed by the Swiss franc as the currency climbed above 1.01. Versus the European currencies, the US dollar appreciated against the British pound due to the mounting bets of a 25 - 50bp rate cut by the Bank of England, while the euro held near 1.57. The US dollar took the biggest hit against the New Zealand dollar as investors moved into higher yielding assets, with the Australian dollar following behind as commodity prices accelerated. However, the Canadian dollar came out as the sole loser among the commodity currencies as the struggling US economy persists to hamper the outlook for Canada.

Fresh economic data portrayed greater downside risks for the US economy as tightening credit conditions pushed consumers to hold back on spending. As a result, the Consumer Credit index plunged to $5.2B from a revised $10.3B, with both revolving and non-revolving debts declining. Amid the pessimistic outlook for the economy, investors are showing surprising resilience against the financial turmoil as Treasury yields showed to be increasing in March by Bloomberg. On average, Treasury yields rose 0.33 percent from March 17 to April 4th – reflecting investors’ increased willingness to diversify out of risk free investments.

The securities market advanced as Washington Mutual came closer in reaching a $5B infusion from investors, but failed to hold onto the gains as investors rushed to cash-in their profits on energy and tech stocks. As a result, the DJIA finished the session 3.01 points higher at 12,612.43 points, with AIG and Merck picking up the biggest gains. Among the broader indices, the S&P500 rose 2.14 points to 1,372.54 points, with 137 shares hitting a new 52 week high.

US Treasury demands faltered as investors raised their risk appetite – leading many to leave the safe haven of risk free bonds. Consequently, the benchmark 10-Year yield jumped to 3.556 percent from 3.470, while the 2-Year yield surged to 1.948 percent from 1.827.

Looking ahead, all eyes will be focused on the Bank of Japan’s rate decision tomorrow - with most market participants expecting the central bank to hold key rates at 0.50 percent. Following the rate decision, our focus will be turned to the Minutes of the FOMC Meeting for March 18 at 18:00 GMT, and will look for clear signs of what the central bank will do next to fight off the downside risks to the economy.

David Rodriguez is a Currency Analyst at FXCM.