The U.S. dollar maintained its tight range from the second half of the week against most of its counterparts, while gaining slightly versus its higher-yielding rivals as global equities ticked lower. The greenback gained the most against the Euro following dovish comments from Germany’s central bank. The Canadian dollar dropped after a government report showed inflation slowed in April more than economist forecast, reducing speculation that the Bank of Canada will resume boosting borrowing costs. With no economic data slated for release today in the U.S. expect the greenback to continue to trade with the prevailing risk sentiment, possibly gaining as U.S. equity futures foreshadow a lower open for American shares.
The Euro weakened versus the U.S. dollar as the German Bundesbank said growth in Europe’s largest economy will probably slow, prompting traders to reduce bets the European Central Bank will increase interest rates. German growth is “likely to ease somewhat in the foreseeable future,” the Frankfurt-based central bank said in its monthly bulletin published today. Germany’s Economy Ministry sees growth of 2.6% this year. Europe’s common currency has climbed 6.5% against the dollar this year as the European Central Bank raised rates, while the U.S. Federal Reserve has left their benchmark rates at almost zero.
The Japanese yen weakened modestly versus the U.S. dollar as the Bank of Japan maintained monetary stimulus to support an economy in recession after a record earthquake. Japan’s currency is set for a weekly loss against all of its major counterparts as BoJ Governor Masaaki Shirakawa and his colleagues decided to keep a 30-trillion yen credit program and a 10 trillion yen asset-purchase fund that represent the bank’s main policy tools. The decision to hold current policy comes after a report yesterday that showed Japan’s gross domestic product contracted an annualized 3.7% in the three first quarter after a magnitude-9 earthquake and a deadly tsunami disrupted supply lines and caused factories to shut.
The British pound opened this morning unchanged from yesterday’s close against the U.S. dollar as the pair has maintained a tight range over the past few weeks. The pound has fluctuated between gains and losses versus the greenback as investors speculated on when the Bank of England will raise borrowing costs from a record low of 0.5%. The central bank has held rates even as the fastest inflation in more than two years squeezes household finances. Consumer prices rose an annual 4.5% in April, the fastest since October 2008.
