The U.S. dollar fell across the board on risk assumption, dropping to one-week lows against the Euro and Japanese yen. The U.S. dollar also tumbled versus the Swiss Franc after KOF Swiss Economic Institute in Zurich said that a monthly gauge that aims to predict the Swiss economy’s direction about six months ahead remained this month at its April level of 2.30, the highest since August 2006. The Swedish krona gained following a report that showed Sweden’s economy grew for a sixth consecutive quarter. The New Zealand dollar rose to the highest level in three years against the greenback on speculation China will buy the nation’s assets to diversify the world’s largest holding of foreign reserves. Meanwhile, consumer spending in the U.S. climbed less than forecast in April as food and fuel prices rose, a sign that faster income gains are necessary to boost the biggest part of the economy. Purchases rose 0.4% after a revised 0.5% gain the prior month, the Commerce Department reported today. Later today, pending home sales are expected to decline 1.0% after gaining 5.1% in the month prior.
The Euro traded to its highest level against the dollar in a week as rising global stock markets increased demand for higher-yielding currencies. However, economic data released in the region suggests that the Euro could come under increased pressure in the medium-term. An index of executive and consumer sentiment in the Euro region slid to 105.5 this month from 106.2 in April. At the same time, inflation in Germany, Europe’s largest economy, unexpectedly eased in May after oil prices dropped from a 2 ½ year high. The harmonized inflation rate fell to 2.4% from 2.7% in April, the Federal Statistics Office said today. The soft price pressures data may cause the European Central Bank to have the scope to keep their benchmark interest rates near a record low of 1.25% for the remainder of the summer.
The Japanese yen gained against the U.S. dollar but fell against most of its rivals as Japan’s credit outlook was lowered by Fitch Ratings to negative from stable. The company’s long-term local currency rating for Japan is AA- and long-term foreign currency rating is Aa. Japan’s government debt is projected to reach 219% of gross domestic product, the Organization for Economic Cooperation and Development said this week.
The British pound pushed modestly higher versus the U.S. dollar as global equities rose and a report showed improving confidence. An index of sentiment rose 10 points to –21 in May from the previous month, the highest in five months, the GfK NOP Ltd. said. A separate report showed house prices increased 0.3% this month, beating economist estimates. Nevertheless, with national holidays in the United States and the United Kingdom on Monday, expect the GBP/USD pair to hold a tight range as market liquidity thins ahead of the long weekend.
