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U.S. Dollar Falls as Global Stocks Rise on Strong Chinese Data

The U.S. dollar slid versus most of its major counterparts overnight as strong Chinese economic data sparked a bout of risk appetite, sending Asian and European equities higher and dampening demand for the greenback as a safe-haven.  Indeed, Chinese retail sales rose 16.9% last month and industrial production increased more than economists forecast, the statistics bureau reported today.  The U.S. dollar gained slightly against the Swiss franc as the government lowered its forecast for 2012 economic growth and said further currency appreciation poses risk to its outlook.  The Franc continues to hold near all-time records against the U.S. and the Euro.  Meanwhile, the U.S. economic docket showed sales at retailers fell in May on slumping demand for autos and electronics.  The 0.2% decrease was smaller than forecast and followed a 0.3% April gain, Commerce Department figures showed in Washington.  Meanwhile, wholesale costs in the U.S. rose more than forecast in May, led by higher prices for fuel and the fastest rise in 30 years for apparel and textile.  The 0.2% increase in the producer-price index compares with the 0.1% median estimate of economists, Labor Department figures showed today.  The dollar has shown little reaction to the data in early trading.

The Euro gained on widespread risk assumption, but remains near the lows of recent ranges as the European debt crisis continues to dominate headlines.  Indeed, European finance chiefs have begun the final stage of hammering out a Greek rescue to prevent the euro area’s first sovereign default after Standard & Poors slapped the country with the world’s lowest credit rating.  Policy makers are seeking to narrow differences on how investors share the cost of easing Europe’s biggest debt burden and to wrap up a new financing plan at the leaders’ summit later this month, a year after Greece received a first bailout. S&P said yesterday the nation is “increasingly likely” to face debt restructuring.  As a result, the cost to insure Greek debt indicates a chance of about three in four that Greece will default in the next five years.  

The Japanese yen fell as Asian stocks rallied on the back of strong data released in China, the world’s fastest growing economy.  The Bank of Japan kept its benchmark overnight rate in a range of zero to 0.1% and left unchanged its 30 trillion yen lending facility and 10 trillion yen asset-buying program.  The central bank also announced a 500 billion yen plan to make loans available to companies at 0.1% interest for two years, a move aimed at revitalizing an earthquake-hit economy by directing funds to industries.   Nevertheless, the USD/JPY exchange rate has remained in a tight, 1% range for the past weeks. 

The British pound strengthened against the dollar after a report showed U.K. inflation held at the fastest pace since October 2008 in May, stoking bets that the Bank of England will raise interest rates.  Consumer prices rose 4.5% in May from a year earlier and core inflation eased to 3.3% from 3.7%.  The Bank of England kept its benchmark rate unchanged last week as concerns about a faltering recovery took precedence over an inflation rate that is more than double its 2.0% target.  Policy maker Martin Weale said yesterday that there is a “substantial risk” that inflation will accelerate to more than 5.0% this year and that recent “softer” data hasn’t changed his view on the need for rate increases. 

US$ Retraces Some of Friday's Gains, Kiwi Falls on Quakes

The U.S. dollar slid modestly versus most of its counterparts overnight, but managed to hold on to nearly all of its gains from Friday’s trading session.  Indeed, the greenback stayed within one cent of its monthly high versus the Euro on concern European leaders may be unable to find common ground on a Greek bailout.  New Zealand’s dollar fell over 1.0% after earthquakes with magnitudes of 5.2 and 6.0 struck near Christchurch, according to the U.S. Geological Survey.  In February, the city was devastated by a magnitude 6.3 temblor that killed more than 180 people and closed the central business district.  Today’s quakes will likely exert downward pressure on the so-called kiwi over the coming days.  There is no major economic data slated for release in the U.S. today, so expect the dollar to continue to ebb and flow with the prevailing risk sentiment.  Tomorrow sees the release of the Producer price Index and Retail sales, which could set the tone for the greenback this week.  The consumer price index, empire state manufacturing and Industrial production are slated for Wednesday, followed by housing starts, weekly jobless claims and the Philly Fed on Thursday.  Consumer sentiment will round out the week on Friday morning. 

The Euro pushed slightly higher versus the U.S. dollar, but remains near recent lows against its American counterpart as the Greek debt crisis has once again come into focus.  European Central Bank President Jean-Claude Trichet and German Finance Minister Wolfgang Schaeuble are at odds over whether Greek bondholders should be compelled to incur losses in the nation’s second bailout in 14 months.  In addition, Trichet signaled last week that the central bank will likely raise interest rates in July while reiterating that inflation will fall below its 2.0% limit next year.  The bearish outlook on inflation has caused traders to reduce bets that the ECB will aggressively raise rates over the coming year.  A Credit Suisse AG index showed the swap traders are pricing in  62.1 basis points worth of hikes over the next twelve months, down from 81.1 basis points earlier this month.

The British pound rallied from two-week lows versus the U.S. dollar and gained for the fourth day against the Euro as the European debt crisis weighed on the common currency.  The Bank of England said U.K. inflation is “reasonably well anchored” in its Quarterly Bulletin published today and market participants will look to comments from policy maker Martin Weale to guide the direction of the pound throughout the day. 

The Japanese yen fell to a one month low versus the U.S. dollar and was under pressure against its other trading partners on bets Japan’s central bank will introduce more measures to boost the economy.  Indeed, expectations are growing for monetary easing measures given that post-earthquake economic recovery will take time.  The yen stayed lower after a report showed Japan’s factory orders declined 3.3% in April from March, when they rose 1.0%, the Cabinet Office said today.  Orders, an indicator of capital spending in three to six months, were projected to increase 1.7%.  

US$ Gains As Equities Continue Correction

The U.S. dollar gained versus most of its major counterparts, extending gains from yesterday, as European equities fell and American futures foreshadow a lower open.  However, the New Zealand dollar has stayed near all-time highs over the greenback after data showed China’s imports increased in May.  China’s imports jumped 28.4% from a year earlier, the biggest gain since January, the government reported today.  China is New Zealand’s second biggest export market.  Moving forward, the U.S. dollar continues to be under pressure as traders decrease bets for future interest rate hikes in the U.S.  Futures contracts on the Chicago Board of Trade today showed a 21.0% chance U.S. policy makers will increase the target lending rate by March, down from odds of 37% a month earlier.  Meanwhile, the U.S. economic docket showed that prices of goods imported into the U.S. unexpectedly rose in May as increasing costs for consumer goods like autos and clothing overshadowed the first drop in fuel expenses in eight months.  The 0.2% increase in the import-price index, followed a revised 2.1% climb in April.

The Euro declined modestly versus the dollar amid prospects the European Central Bank will slow the pace of interest rate increases later this year.  Indeed, there has been a moderation in interest-rate expectations after ECB President Jean Claude’s Trichet’s speech yesterday, despite his reiteration of “strong vigilance.”  The market is now pricing in a July interest rate hike for the Euro-zone, but traders are decreasing bets that the ECB will aggressively raise rates throughout 2011.  The Euro has also become under pressure after Trichet rejected any direct participation in a second bailout for Greece.  However, the common currency pared its decline as Bundesbank, the German central bank, raised its forecast for German growth to 3.1% this year.  The forecast compares with a February prediction of 2.5%. 

The Japanese yen climbed against all of its most-traded counterparts on speculation Japanese exporters took advantage of yesterday’s biggest drop of the month to buy the currency.  The safe-haven currency also found support as global equities declined.  Meanwhile, Japan’s producer prices rose for an eighth months in May, pushed up by higher energy and raw material costs.  Prices companies pay for energy and unfinished goods gained 2.2% from a year earlier, a Bank of Japan report showed today.  However, the data has only a limited effect on the direction of the yen. 

The British pound weakened as a report showed U.K. manufacturing output fell more than forecast, adding to signs that growth is fading and reducing the case for higher rates.  Factory output contracted 1.5% in April after rising 0.2% in March, the Office for National Statistics reported today.  Overall industrial output, which includes mining, quarrying and utilities, fell 1.7% on the month.  Analysts have suggested that April’s extra public holiday for the royal wedding hurt orders and the impact of the Japanese earthquake hit supplies.  A separate report showed prices at factory gates rose 0.2% in May, the lease since September. 

US$ Struggles To Find Direction Following ECB, BoE Rate Decisions

The U.S. dollar weakened overnight against most of its major rivals as U.S. equity futures rose and before a U.S. report that economists estimate will show the trade deficit widened to the most in ten months.  However, the report released at 8:30 this morning showed the U.S. trade deficit unexpectedly narrowed in April reflecting a plunge in auto and oil imports combined with record exports.  The gap shrank 6.7%, the lowest since December.  In addition, weekly jobless claims unexpectedly rose last week, a continued sign that the labor market is struggling to gain traction.  The dollar lost ground versus the Euro and pound after the ECB and Bank of England held their benchmark interest rates and the market expects bullish comments from European Central Bank President Jean-Claude Trichet this morning.  The U.S. dollar fell to a record low versus the New Zealand dollar after Reserve Bank of New Zealand Governor Alan Bollard signaled the central bank will lift interest rates.  However, the greenback rose versus the Australian dollar after a report from the statistics bureau showed jobs increased by 7,800 in May from the previous month.  The print compares with a median estimate for a 25,000 gain in a Bloomberg survey. 

The Euro climbed against the U.S. dollar after the European Central Bank left its benchmark interest rates on hold in a widely expected move.  The central bank raised borrowing costs in April for the first time in three years, bringing the main refinancing rate to 1.25%.  The Euro has lost ground in early trading during ECB President Jean-Claude Trichet’s news conference in Frankfurt following the meeting.  Trichet has signaled the central bank intends to raise interest rates again next month, saying “strong vigilance” is warranted to contain inflation.  Latest data confirm “continued upward pressure on inflation,” Trichet said. Euro-area inflation has been in breach of the ECB’s 2.0% limit since December.  The Euro’s gains may be short-lived as the ECB has also indicated that they will keep up a full allotment of refinancing/liquidity operations in effect.  

The Japanese yen fell against most if its counterparts, including U.S. dollar, as U.S. stocks are poised to open higher and data showed that the Japanese economy contracted more than initially estimated, underscoring the damage the March 11^th earthquake and tsunami inflicted on capital spending and factory production. Gross domestic product shrank at an annualized 3.5% rate in the first quarter, compared with the 3.0% median forecast.  However, some analysts maintain that this report doesn’t alter predictions that the economy will gain momentum later this year as companies boost output and government reconstruction projects get underway.

The British pound rose against the U.S. dollar as a report showed the U.K. trade deficit narrowed more than forecast in April and the Bank of England kept its benchmark interest rate on hold.  The goods-trade gap was 7.4 billion pounds compared with 7.7 billion pounds in March, the Office for National Statistics said today.  Meanwhile, the BoE has left its main interest rate at a record-low 0.5% since March 2009, and bought 200 billion pounds of bonds under a so-called quantitative easing program that ended in January 2010.  All 55 economists in a Bloomberg survey expected the move.

US$ Gains as Stocks Fall Following Poor Non-Farm Payrolls

The U.S. dollar gained modestly versus most of its major rivals, save the Japanese yen, as falling global equities boosted demand for the world’s reserve currency.  However, a slew of data set to be released this morning will likely dictate the direction of the dollar for the rest of our trading session.  U.S. employers in May added the fewest number of workers in eight months and unemployment unexpectedly rose to 9.1%, underscoring Federal Reserve concerns the expansion is failing to boost the labor market.  Payrolls increased by a less-than-projected 54,000 last month, after a revised 232,000 gain in April, Labor Department figures showed today in Washington.  The jobless rate climbed to the highest level this year from 9.0% a month earlier.  The greenback initially lost ground following the data, but quickly retraced its losses as the negative data may spark another bout of risk aversion.  Later this morning, the ISM Non-manufacturing composite is expected to register at 54.0, up from 52.8 the month prior.

The Euro opened largely unchanged versus the U.S. dollar overnight even as global equities continued to fall.  The Euro is headed for its longest stretch of weekly gains versus the U.S. dollar since March as international officials prepare a second bailout for Greece.  The Euro has weakened slightly in early trading following the release of weaker than expected U.S. jobs data.  With U.S. equity futures foreshadowing American shares to fall more than 1.0% on the open, the common currency could slide due to widespread risk aversion. 

The Japanese yen rose against all of its major counterparts, including the U.S. dollar, as Asian stocks declined after a measure of Chinese corporate activity fell in May.  The yen has extended its advance over the U.S. dollar in early trading after a report showed U.S. employers added fewer jobs than forecast in May, increasing concern the U.S. economic recovery in slowing and boosting the yen as a safe-haven.

The British pound weakened against U.S. dollar and fell to a monthly low versus the Euro after an index of U.K. service industries dropped more than economists estimated, adding pressure on the central bank to keep interest rates on hold.  The service gauge from Markit Economics Ltd. fell to 53.8 in May from 54.3 in April, less than the 54.2 median estimated by economists.  Also, Barclays Capital pushed back its forecast for the Bank of England to start increasing interest rates after a manufacturing index fell to a 20-month low this week and U.K. mortgage approvals dropped to the least in four months amid signs of slower global growth. 

US$ Falls Despite Lower Global Equities

The U.S. dollar declined overnight, despite falling global equities.  However, the dollar could see increased selling pressure during our session as American stock futures show that U.S. shares could retrace modestly from their 2.0% decline from yesterday. The U.S. dollar fell the most against the Norwegian Krone as manufacturing in the Scandinavian country expanded at a faster pace in May as orders and production gained.  Today’s economic docket showed that more Americans than forecast filled applications for unemployment benefits last week, signaling the labor market it struggling to pick up.  In addition, the productivity of U.S. workers slowed in the first quarter of 2011 and labor costs rose as companies boosted employment to meet rising demand.  The measure of employee output per hour increased at a 1.8% annual rate after a 2.9% gain in the prior three months, revised figures showed.  Employee expenses climbed at a 0.7% rate after dropping 2.8% the prior quarter. 

The Euro gained against nearly all of its major trading partners as German Chancellor Angela Merkel said she is committed to the currency and European Central Bank officials backed the creation of a euro-region finance ministry.  Indeed, ECB President Jean-Claude Trichet said, “Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union.”  The comment sparked increased belief that European policy makers will find a way out of the debt problem and save the Euro.  German Chancellor Merkel said, “We don’t have a euro problem in Europe.  We have more of a debt problem.”  She continued to say that Germany is committed to the euro, which is stable.

The Japanese yen pushed higher versus the U.S. dollar but remained lower against the majority of its rivals as Japan’s Prime Minister Naoto Kan survived a no-confidence vote after offering to step down once his work to lead a recovery from March’s earthquake is accomplished.  Indeed, the Diet’s lower house voted 293-152 against the no-confidence motion against Kan, as opposition lawmakers failed to attract enough support from his Democratic Party of Japan.  Yukio Katoyama called for party unity in rejecting the bill after Kan said he would step down once the disaster is contained. 

The British pound gained versus the U.S. dollar and pared losses against the Euro after an index of U.K. building activity increased by more than analysts estimated.  The gauge of U.K. construction from Markit Economics Ltd rose to 54 last month from 53.3 in April, exceeding estimates from economists in a Bloomberg survey.  Meanwhile, Bank of England policy maker Paul Fisher said he would consider adding to the bank’s emergency bond purchases if the U.K. economy took a “sudden downturn.”  Still, he added he was “somewhat reluctant” since the threat of deflation subsided.  Britain’s economy expanded 0.5% in the first quarter, barely enough to offset the contraction in the final three months of 2010.