The U.S. dollar extended yesterday’s rally versus most of its counterparts as world equity indexes dropped on continued worries over the European debt crisis and poor global economic data. Indeed, the greenback pushed to a three-week high against the Euro on speculation the Greek debt problem is deteriorating, dampening demand for the Euro-region’s assets. The dollar also soared against the commodity-based currencies, namely the New Zealand dollar after Finance Minister Bill English said the currency’s strength was hurting the economy. Meanwhile, the U.S. economic docket showed that fewer Americans than forecast filed application for unemployment benefits last week, indicating the pick up in firings that began in April may be abating. Also, housing starts in the U.S. increased more than forecast in May. Work began on 560K homes at an annual pace, up 3.5% from the prior month. The strong data has slightly improved the prevailing risk sentiment, causing the dollar to push modestly lower in early trading.
The Euro fell for a second day to the lowest level of the month against the U.S. dollar as the Greek debt crisis continues to dominate trading. Greek Prime Minister George Papandreou will reshuffle his cabinet and seek to win a confidence vote today after attempts to garner opposition support for an austerity plan failed. Police fired tear gas as thousands of demonstrators encircled the Parliament House in Athens yesterday to protest wage cuts and tax increases. The Euro stayed lowered after European Central Bank Governing Council member Nout Wellink said the emergency fund for euro-area countries needs to be boosted if private investors are pressured to contribute to additional aid for Greece. German Chancellor Angela Merkel and France President Nicolas Sarkozy will meet tomorrow in Berlin, with pressure increasing for the leaders to reach an accord on a rescue package for Greece. In addition, European finance ministers agreed to convene again on June 19th after they failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new plan for Greek aid.
The Japanese yen gained against all of its counterparts, including the U.S. dollar, as falling risk appetite boosted the safe-haven currency. Indeed, European and Asian stocks tumbled as rioting against planned austerity measures threatened Greece’s government and the global economic recovery. With U.S. equity futures pointed towards a lower open, the Japanese yen could continue to push higher during our trading session.
The British pound weakened against the U.S. dollar after data showed U.K. retail sales slumped more than economists forecast, adding further weight to calls for the Bank of England to keep interest rates on hold. Retail sales fell 1.4% from April, the Office for National Statistics said, as sentiment was hurt by the government’s budget squeeze. The drop exceeded expectations for a 0.6% drop. Governor Mervyn King yesterday said officials should hold rates at a record low because weak growth in wages signals the current above-target inflation will prove temporary.
