The U.S. dollar soared against all of its major rivals as global stocks plunged as the European Union struggled to find a solution for a second Greek rescue. Indeed, an emergency session of euro finance chiefs in Brussels failed to break a deadlock on how to involve private investors in a second bailout without triggering a default, casting doubt on funds due from the International Monetary Fund next month. The greenback rallied against all of its counterparts, but the Australian dollar was able to erase its losses after Reserve Bank of Australia Governor Glenn Stevens signaled inflation figures next month may be essential to the timing of an interest rate increase, boosting bets that borrowing costs will advance. Meanwhile, the economic docket showed that MBA mortgage application rose by 13.0%, up from –0.4% last month. Also, the cost of living in the U.S. rose more than forecast in May as raw-material expenses are filtering through to other goods and services. The consumer-price index increased 0.2%, compared with the 0.1% median forecast. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.3%, the biggest increase since July 2008. A different report showed that manufacturing in the New York region unexpectedly shrank in June. Later this morning, Industrial Production in the world’s largest economy is expected to rise to 0.2%, from a flat reading the month prior.
The Euro fell to its lowest level of the month as the European Union continues to fail to break a deadlock on a second bailout of Greece and demonstrations threatened Prime Minister George Papandreou’s majority. In Athens, Greek police used tear gas to disperse demonstrators around the Parliament as 20,000 people rallied against additional wage cuts and tax increases as lawmakers debated budget cuts and asset sales that are conditions of the aid. Ports, banks, hospitals and state-run companies were paralyzed by strikes, while a Papandreou supporter said he won’t support the austerity measures and another bolted his Socialist Party. Pressure to craft a rescue plan and avoid the first euro area default intensified earlier this week after S&P slapped Greece with the world’s lowest credit rating and the European Central Bank and Germany continue to clash over easing Greece’s debt load. At 143% of gross domestic product, it is the highest in Europe.
The Japanese yen rose against its higher-yielding counterparts, but fell versus the U.S. dollar, as falling risk appetite boosted demand for the pair of safe-haven currencies. Meanwhile, Eisuke Sakakibara, formerly Japan’s top currency official, said the yen may strengthen versus the U.S. dollar in the future as the U.S. faces a possible credit rating downgrade amid an economic slowdown. He also said that Japan is unlikely to again intervene in the currency market to stop the yen’s climb because it may not be able to gain international cooperation again.
The British pound slumped versus the U.S. dollar after a report showed U.K. jobless claims surged more than economists estimated in May and wage growth slowed, damaging the case for the Bank of England to raise interest rates. The Office for National Statistics said jobless-benefit claims jumped 19,600, up from an expected 6,500. Wage growth excluding bonuses slowed to 2.0% in the three months through April, the weakest since the second quarter of 2010. However, U.K. consumer confidence jumped the most in 5 ½ years in May as Britons became less pessimistic about spending and the extra public holiday for the royal wedding led to a “feel-good factor,” Nationwide Building Society reported today.
