The U.S. dollar rallied overnight, erasing losses from its first day of trading in 2012 as European equities retreated and U.S. stock futures show American shares will likely trim yesterday’s gains at the open. The U.S. dollar also found relief against the commodity-based currencies, such as the Canadian dollar, as the price of oil pared its rally from yesterday. The price of oil had risen as Iran partook in a 10-day military exercise near the Strait of Hormuz at the mouth of the Persian Gulf. Demand for the dollar was tempered however before this morning’s economic releases that are expected to show that factory orders increased and the service industry expanded, damping demand for safer assets. Bookings for U.S. factory goods are expected to climb 2.0% in November after dropping 0.4 the previous month. The service industry is expected to show the fastest pace of growth in three months.
The Euro pulled back from a one-week high after a European report showed inflation slowed, backing the case for the region’s central bank to cut interest rates further in the new year. European inflation slowed to 2.8% for December from a three-year high of 3.0% the prior month, the European Union statistics office said. The print maybe give the European Central Bank the scope to cut interest rates by as much as 50 basis points, to 0.50% by the second quarter. A separate report showed that the euro-area composite index based on survey of purchasing managers in services and manufacturing stayed below the 50 level that indicates contraction for a fourth month. The Euro also came under pressure after El Pais newspaper reported the Spanish government helped the Valencia region make an overdue payment to Deutsche Bank AG. The newspaper cited sources at the national economy ministry and the regional economy department.
The British pound fell against the U.S. dollar overnight as general risk aversion weakened demand for the currency. Meanwhile, the economic docket in the U.K. remained light. A report from Markit Economics showed that construction activity increased to 53.2, beating expectations for a print of 51.5. In addition, mortgage approvals rose to 52,900 in November from 52,700 in the month prior. The economic data has had little effect on the direction of the sterling.
