The U.S. dollar held a largely flat range against most of its counterparts overnight as the greenback continues to consolidate near its recent highs. However, the U.S. dollar rallied over 1.0% against the Japanese yen after Bank of Japan Governor Masaaki Shirakawa said the economy is in a “very severe” state, fueling bets monetary policy for the island nation could be eased further. Today’s economic docket showed that housing starts in the U.S. unexpectedly fell in April as home builders continued to struggle almost two years into the economic recovery. Workers began on 253K houses at an annual pace, down 11% from the prior month. Later this morning, industrial production in the U.S. is expected to climb for a six consecutive month. Production at factories, mines and utilities is expected to increase 0.4% after growing 0.8% in March.
The Euro gained modestly for the second day against the U.S. currency as European finance officials meeting in Brussels endorsed a bailout for Portugal, boosting confidence that the region’s debt crisis will be contained. Luxembourg’s Jean Claude-Juncker, who leads the group of Euro zone finance ministers, said that the first traunch of Portugal’s aid package is due by the end of May and a treaty on the European Stability Mechanism will be signed in June. Ministers for the first time also floated the idea of talks with bondholders over extending Greece’s repayment schedule. Europe would consider “reprofiling” Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Junker said. The Euro gained as investors perceived the statement as proactive.
The Japanese yen fell against all of its 16 most-actively traded counterparts as the island nation’s central bank head said the economy is in a “very severe” state. Bank of Japan Governor Shirakawa told lawmakers in Tokyo today that Japan’s economy has been a severe situation since the March 11th earthquake and the central bank is committed to ending deflation. Meanwhile, a statement released by Prime Minister Naoto Kan’s cabinet said that the government hopes for “flexible” action by the bank to support the economy and will also closely watch the currency. The bearish comments have led investors to shed the safe-haven currency.
The British pound rose against the U.S. dollar as a report showed inflation accelerated more than forecast in April and reached the fastest pace since 2008, bolstering the case for higher interest rates. U.K. consumer prices gained 4.5% last month from a year earlier, the Office for National Statistics said today. The median forecast of economist was 4.1%. Bank of England Governor Mervyn King said the recent surge in inflation is being driven by higher sales taxes and increased energy and import prices. Nevertheless, the BoE left its key rate unchanged at 0.5% on May 5th as policymakers prioritized growth over taming inflation.
