The U.S. dollar gained modestly against most of its higher-yielding counterparts, including the Euro, on concern that Europe’s leaders will struggle to find a solution to the debt crisis, threatening the region’s economic recovery. The U.S. Dollar Index approached a seven week high and the greenback traded to its highest level versus the Canadian dollar since March as the price of oil continued to retreat. The South African rand fell over 1% on speculation a sluggish recovery in Africa’s largest economy will persuade the central bank to keep rates on hold this year. Reserve Bank Governor Gill Marcus yesterday said the economy’s recovery is “fragile”, and domestic demand poses little risk to inflation. Meanwhile the economic docket in the United States showed that orders for U.S. durable goods dropped more than forecast in April, reflecting less demand for aircraft and disruptions in supplies of auto parts stemming from the earthquake in Japan. Bookings for goods fell 3.6%, the most since October, after a 4.4% jump in March, a Commerce Department report showed today in Washington.
The Euro declined against most of its rivals amid disagreement over how to resolve the sovereign-debt crisis. European Union Economic and Monetary Affairs Commissioner Olli Rehn told French newspaper Les Echos in an interview that Greek debt maturities could be extended on a voluntary basis. He also said at a forum in Paris that Greece is the “most difficult case” among the three countries that have received bailouts from the EU and the International Monetary Fund. The Euro also fell to a fresh all-time low against the Swiss Franc after GfK AG said its German confidence index will fall for a third consecutive month in June. A drop in confidence in Europe’s largest economy may prompt investors to scale back bets that the European Central Bank will raise interest rates further.
The Japanese yen continued to hold its tight range from the past week against the U.S. dollar as the currency pair struggles to find a definitive direction. However, the Japanese currency could come under pressure in the medium-term as the Bank of Japan indicated its willingness to expand lending programs to support reconstruction efforts after the nation’s record March 11 earthquake crippled factory production and pushed the economy into a recession. “We’re examining whether there’s a way to enhance” a 3 trillion yen lending program for industries that can spur economic growth, Governor Masaaki Shirakawa said in a speech in Tokyo today.
The British pound strengthened against the U.S. dollar and the Euro as a report showed U.K. exports helped the economy resume growth in the first quarter, outweighing the biggest slump in consumer spending in almost two years. Gross domestic product expanded 0.5% in the first three months this year, matching an initial estimate. Exports rose 3.7% in the quarter with the net trade adding 1.7% points to GDP growth. Consumer spending dropped 0.6%, the most since the second quarter of 2009. However, as the Conservative U.K. government moves forward with strict austerity measures to cut the nations budget deficit, the British economy will likely stay under pressure. Indeed, GDP is forecast to expand 1.5% this year, after growing 1.6% last year, according to a survey of economists.
