Dollar selling climbs after Trichet accepts rollover plan

Open season on the dollar continues to keep the bulls at bay. A top Chinese official stumbled across portfolio theory and warned against the danger of failing to diversify. German Chancellor Angela Merkel apologized in advance to President Obama for an increasing hotel bill during his European tour now that she has the debt crisis firmly behind her. The Australians left monetary policy on hold as the central bank highlighted tougher conditions facing the non-mining sector.

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Euro – Ms. Merkel told the President that she believes the euro has the sovereign debt crisis firmly behind it according to a spokesman, helping lift the single currency to a one-month high against the dollar. Meanwhile, ECB Chief Trichet indicated that the central bank would cooperate with a plan to allow Greek creditors to rollover debt at maturity. This would help Greece avoid a funding squeeze and would come perhaps at the cost of conditions floated last week including a higher coupon rate at rollover and collateral to be held by the debt holder. The euro rose to $1.4682 as investors warmed to the apparent success of recent negotiations and as they readied for Thursday’s ECB meeting at which it’s becoming increasingly expected that the ECB will prime the market for a July rate increase. Eurozone retail sales jumped during April according to a report Tuesday. Sales across the 17-nation area rose 0.9% after falling as much in March. Compared to one-year ago sales rose by 1.1%. Also convincing investors that the ECB wants to get back into its nascent monetary tightening process was a report showing German factory orders jumped by 2.8% in April.

U.S. Dollar – A Chinese foreign exchange official warned against focusing on dollar-denominated investments in a widely reported story Tuesday that is helping depress the dollar. The dollar index fell to 73.70 for a 0.4% decline on the day. The State Administration official warned against the economic and political risks of holding too many dollars and has been taken by many to assume that China may diversify its vast foreign exchange holdings. The official also proposed widening the yuan’s trading band. The dollar remains broadly lower as investors fear that the weaker economic outlook will keep anything else with a higher yield better-supported.

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