Lasting grief for the dollar from December through April has delivered consecutively weaker closes for the dollar’s value against a basket of its major trading partners. Growing risk appeal outside of the United States has turned to a mild concern that the world’s number one economy is possibly losing its head of steam at a time when the Federal Reserve no longer has use of relief in the form of its QE luxury-liners. The recovery in global growth has marked a similar rebound in inflation-bothersome commodity prices.
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U.S. Dollar – It’s hard to know whether or not the Royal Wedding present of a million dollars would be the best thing to offer Prince William and Kate Middleton. On current form and on most projections, the dollar is heading lower. But that consensus can often create the beginnings of the end to such fairytales. The problem facing the dollar is that the rebound in the economy looks to be tapering off just as the Fed’s open-market bond purchases are also coming to an end. The million-dollar question is whether the policy has created sustainable traction ahead. Already first-quarter growth indicated a pullback and rising energy prices can only crimp consumption, unless of course oil prices suddenly slip. Data released on Friday showed a dip in personal spending from an upwardly revised 0.9% in February to a gain of 0.6% in March. Later in the day the Chicago purchasing managers index is set to show amelioration in activity, while the University of Michigan consumer confidence index is also expected to slip. The dollar index fell to its weakest since July 2008 and currently stands at 72.93 for a decline on the session of 0.25%.
British pound – Britain is closed for the Royal Wedding celebrations but that didn’t stop the pound from rising against 12 of its 16 most-commonly traded pairings. Against the dollar the pound is higher at $1.6655.
Euro – Investors continue to look through the sovereign debt woes that fail to lay down preferring to focus instead on growth at the heart of the Eurozone. With that growth comes the altogether different attitude from the ECB that ensures higher relative yield for the single currency compared to the dollar. On Thursday council-member Yves Mersch said that the central bank would continue to withdraw non-standard measures at an appropriate pace in light of the “incoming news,” which we’ll take to mean inflation. The euro has $1.5000 within easy reach as a result of domestic policy and the lackluster appeal of the dollar. Today the euro buys $1.4861.
Japanese yen –The Japanese yen surged in early New York trading against the dollar following comments from a Swiss central banker, which were unambiguously bullish for the franc. The yen and Swiss often move hand-in-hand on safe haven grounds and although that argument has been under review since the coordinated G7 round of intervention following Japan’s worst earthquake in a century, today the yen continued to play along as the dollar swooned. The yen recently traded against the dollar at ¥81.35.
Canadian dollar – The Canadian unit reversed an earlier gain versus the greenback following an unexpected decline in growth during February. Dealers were prepped for an unchanged monthly GDP report but sold the local dollar to $1.0478 U.S. cents after the event. The government said that manufacturing underperformed and as investors look into the report and think about the future they perhaps sense that strength in the exchange rate might be useful at restraining inflationary pressure but less useful when choking broader economic growth.
Aussie dollar – Treasury Chief Wayne Swan spoke on domestic radio on Friday and used the opportunity to perform some chest-beating to highlight the success of government policy. Mr. Swan claimed victory for the sound fiscal health of the country, growth in employment and an improving economy saying that together these events well-explained the rise in the exchange rate. The Aussie again made a fresh record-high touching $1.0964 at its session best. House price data released for March dipped by 0.2% on a seasonally adjusted basis while private sector credit maintained a 0.6% monthly pace of increase to grow at 3.6% for the year.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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