The U.S. dollar held a mostly flat range overnight against most of its counterparts ahead of a slew of economic data slated for release today in the U.S. However, the greenback did push modestly higher versus the Euro after Moody’s Investors Services lowered Ireland’s credit rating, stoking concern that Europe’s debt crisis may worsen as Greece battles to avoid a bond restructuring. The U.S. economic docket showed that the cost of living in the U.S. rose in March for a ninth consecutive month, led by increases in food and fuel costs that have yet to filter down to other goods and services. The CPI index increased 0.5% for a second month, in line with economists forecast. Also, manufacturing in the New York region expanded in April at the fastest rate in a year, a sign that factories will further propel the economic expansion. Later today, Industrial production is expected to rise 0.6%.
The Euro slid versus most of its rivals after Moody’s cut Ireland to the lowest investment grade and indicated more downgrades may follow. Yesterday, Germany’s finance minister and Standard & Poor’s said Greece may need to restructure debt to avoid defaulting. Greece will announce more than 22 billion euros of deficit-reduction measures through 2014 today, according to Finance Minister George Papacontantinou. Nevertheless, the Euro has gained nearly 8.0% versus the dollar this year on bets accelerating inflation will prompt policy makers to raise interest rates. Indeed, a report showed that inflation for the 17-nation region accelerated more than forecast to 2.7% in March, the fastest pace in more than two years.
The Japanese yen gained and Asian stocks fell on concern China and India will act to cool growth after inflation accelerated. Price pressures in China, the world’s second largest economy climbed 5.4% in March from a year earlier, the fastest pace since 2008. India’s wholesale prices also rose more than forecast. Although China’s growth remains robust, speculation that China will raise interest rates further to cool growth and price pressures by raising interest rates has weighed on stocks and boosted demand for the yen as a safe-haven.
The British pound rose against the Euro but remained unchanged versus the U.S. dollar overnight. Bank of England policy maker Andrew Sentance said in a an interview with Bloomberg yesterday that a rate increase to boost the currency wouldn’t be “unwelcome,” because a slowdown in inflation may be short-lived. “We’re going to see further upward move in inflation through the summer,” and “there’s clearly a risk that inflation goes up to 5% of a bit above,” Sentance said. While consumer-price growth unexpectedly slowed to 4.0% in March, its still double the central bank’s target for inflation.
