The U.S. dollar rallied against the majority of its counterparts as European stocks and U.S. equity futures declined and ahead of data that is expected to show home prices and consumer confidence fell in the U.S., spurring demand for safer assets. The dollar snapped its recent slide versus the Euro on speculation the European Central Bank will not increase its benchmark interest rate any more this year. The greenback gained the most versus Sweden’s Krona after Swedish retail sales unexpectedly fell in July, adding to pressure on the central bank to abandon signaled interest rate increases. This morning the S&P/Case Shiller index is expected to show the value of homes in 20 U.S. cities fell 4.6% from June 2010, the biggest 12-month decrease since November 2009. Later a separate report will show consumer confidence fell to a 10-month low in August. This afternoon, the Fed is scheduled to release the minutes of its August 9th meeting, after policy makers pledged at the session to keep interest rates at a record low through the middle of 2013.
The Euro weakened across the board on speculation the European Central Bank has finished raising interest rates as the region’s sovereign debt crisis curbs economic growth. Indeed, ECB President Jean Claude Trichet said late yesterday the bank is reviewing its assessment of inflation risks. “Risks to the medium-term outlook for price developments are under study in the context of the ECB staff projections that will be released early September”, Trichet said in Brussels. The comment contrasts with his more recent policy statement on August 4th, when he said risks to inflation outlook were “on the upside.” The euro-region’s central bank has raised its benchmark interest rate twice this year t o 1.5% to curb above target inflation. The Euro extended losses after the European Commission said an index of executive and consumer sentiment in the single-currency region fell to 98.3 in August from a revised 103 in July. That is the lowest reading since May 2010.
The Japanese yen advanced versus most of its rivals as stocks stumbled, boosting demand for the safe-haven currency. However, Japan’s jobless rate rose for a second month and retail sales dropped, underscoring the challenge for incoming Prime Minster Yoshihiko Noda in securing Japan’s recovery from the March 11th earthquake. The unemployment rate rose to 4.7% in July as payrolls fell 40K from a month earlier. Retails sales slid a seasonally adjusted 0.3% from June, a Trade Ministry report showed. Noda, who was elected premier by the lower house of parliament today, inherits a recovery under threat from an advancing yen and a global slowdown.
The British pound fell a day after being closed for a holiday despite rising U.K. stocks following a slew of poor economic data. British lenders granted 49,239 loans to buy homes, the Bank of England said today. The reading is less than half the monthly average of 103,000 in the decade to 2007, before the financial crisis. An index of British companies optimism about the economy compared with three months earlier dropped to minus 3 from 19 in July, a unit of Lloyds Banking Group Plc. said today. The print marked the lowest reading since March 2009.
