The U.S. dollar traded in mostly flat ranges overnight, but fell versus the Euro as a report showed the 17-nation’s economic growth accelerated to the fastest pace since the second quarter of 2010. However, there is a slew of event risk scheduled for Friday that could spur a bullish reaction in the reserve currency as growth and inflation in the world’s largest economy gathers pace. The cost of living in the U.S. rose in April, led by increases in food and fuel costs that are starting to filter down to other goods and services. The consumer price index increased 0.4%, matching the median forecast of economists surveyed by Bloomberg News. The print follows a 0.5% the month advance in March, figures from the Labor Department showed this morning. Later, the University of Michigan Confidence report is expected to register 70.0 in April, up from 69.8 in March.
The common currency climbed versus nearly all of its most traded peers, as positive growth data bolstered the case for further central bank interest rate increases. Gross domestic product in the Euro zone rose 0.8% from the fourth quarter, powered by forecast topping expansion in Germany and France. Indeed, German GDP jumped 1.5% from the previous three months and the French economy grew 1.0%, exceeding economists’ median estimates of 0.9% and 0.6%, respectively. Expansion and surging prices in the region are putting pressure on the European Central Bank to raise rates, even as concern escalates that Greece may need extra aid to avoid debt restructuring. Investors expect the ECB will raise its target rate by 92 basis points over the next 12 months, a Credit Suisse Group AG index shows. That’s up from 71 basis points of tightening predicted on May 9th.
The Japanese yen strengthened against most of its counterparts, but held steady against the U.S. dollar, after a bombing in Pakistan killed at least 73 people, boosting demand for Japan’s currency as a refuge. Bombers today targeted 15 buses carrying newly graduated member of Pakistan’s Frontier Constabulary, a parliamentary force, who were going home after a May 11th ceremony. The Tehreek-e-Taliban group said it carried out the attacks a first act of revenge for Osama bin Laden’s death, Pakistan’s Dunya TV reported. Nevertheless, expect the JPY/USD pair to continue to hold tight ranges as the two ebb and flow with the prevailing risk appetite.
The British pound weakened after a report by the Institute for Fiscal Studies said U.K. living standards will fall, spurring bets that monetary policy tightening by the Bank of England will lag behind that of the euro region. Living standards will decline as inflation outstrips income growth and government spending cuts crimp welfare payments, the report said. U.K consumer earnings fell 3.8% in real terms in the 11 months through February after growing through the recession of the previous two years. Prime Minister David Cameron’s government is trying to reduce a deficit running about 10.0% of GDP through March by raising taxes and implementing public spending cuts that are the deepest since World War II.
