The U.S. dollar traded in a mixed direction overnight, testing new dollar highs of recent ranges versus the Euro on deepening concern surrounding the Greek debt crisis. However, the greenback fell against the British pound as the Bank of England said U.K. inflation may reach 5.0% this year. The greenback remains in unfavorable ranges against the commodity-based currencies even as the price of gold and oil slipped overnight. Meanwhile, mortgage applications in the U.S. rose last week to their highest level in more than a month as declining borrowing costs spurred purchases and refinancing. The index increased 8.2% in the period ended May 6, the Mortgage Bankers Association reported today. With a light economic docket and U.S. equity futures pointing towards a flat open, the U.S. dollar could maintain current ranges as market participants await U.S. unemployment data on Friday morning.
The Euro slipped against the majority of its peers on speculation European leaders are slowing the drive to grant Greece additional aid, fueling concern the nation may be forced to restructure its debt. German Chancellor Merkel yesterday said Greece needs to stay the course on budget cuts to deserve an extension of the 110 billion euro lifeline granted last year. A new aid package would feature a rate reduction for Greek loans and an extension of debt maturities, plus extra funds, two officials involved in talks said under condition of anonymity. At the same time, Greek unions held their second general walkout this year, grounding flights and shutting hospitals and schools in protest against deficit reductions. Meanwhile, Finland may insist Portugal’s rescue include terms that force investors to share losses, Kimmo Sasi, who heads the Finnish parliament’s working group on bailout talks, said in an interview today. Portugal became the third euro member to get aid as Europe’s sovereign debt crisis spread beyond Greece and Ireland.
The Japanese yen slid modestly versus most of its counterparts as European stocks rose, sapping demand for the safe-haven currency. Asian equities also tipped higher following strong economic data released in China, the world’s second largest economy. Separate reports showed China’s industrial production advanced 13.4% last month and retail sales grew 17.1%. Nevertheless, the yen remains within one percent of its highs following the Group of 7 multilateral intervention in mid-March.
The British pound gained versus the dollar and the euro after the Bank of England said it sees inflation “markedly higher” in the near term, boosting speculation that borrowing costs will rise from record levels. “There is a good chance that inflation will reach 5 percent later this year and it is more likely than not to remain above the 2 percent target throughout 2012,” the bank said in its inflation report today. Risks to economic growth are “skewed to the downside.” The central bank said it still expects inflation to ease back toward its 2% goal by 2013. A separate report today showed Britain’s trade deficit widened more than estimated in March as exports to countries outside the European Union fell.
