Dollar Rallies on Strong Economic Data

The U.S. Gross Domestic Product grew more in the first quarter than previously estimated, the Commerce Department reported today. Originally estimated at 0.6%, the figure was revised upwards to 0.9%. The improvement came as a weak Dollar prompted a decline in imports and a significant increase in exports. The news prompted the U.S. Dollar to rally by the biggest margin in four weeks versus the Euro and helped it gain against the Japanese yen for the fourth consecutive day.

In addition to falling against the U.S. Dollar, the Japanese Yen sank to its lowest level against the Australian Dollar since November 14. The yen’s decline has been largely driven by carry trades, the practice of borrowing money in countries with low interest rates, like Japan, for investment in higher yielding assets elsewhere.

The greenback’s gains against the Euro were contained by news that consumer prices in the Euro-zone rose 3.5% in May, faster than in April and well above the European Central Bank’s tolerance level. This news diminishes the likelihood that the European Central Bank will cut interest rates anytime soon.

The Canadian Dollar rallied against its southern counterpart, boosted by surging demand for the commodities that account for over half of Canadian exports. Statistics Canada today reported that money flows into Canada exceeded outgoing payments by CAD 5.56 billion last quarter, after a CAD 778 million surplus in the prior quarter, further underscoring the demand for the Loonie.

Japanese Yen dips against U.S. Dollar; falls to four-week lows versus Euro.

Rising U.S. stock prices emboldened global investors, prompting them to take advantage of low interest rates in Japan to borrow money for investment in higher yielding investments elsewhere. Carry trade flows drove the Yen lower across the board, but especially against the Euro and both the Australian and New Zealand Dollars.

The Euro gave up some of its gains from Friday and Monday after negative reports from Germany and France undermined optimism about the health of the European economy. German Consumer Confidence fell more than expected and an index of sentiment among French manufacturers fell to its lowest level since December 2005. Since Germany and France are the largest economies in the European Union, their fortunes often harbinger the fate of the Euro-zone as a whole. However, the news wasn’t all bad for the Euro – consumer prices in the Euro-zone rose 3.5% in May, faster than the previous month and still well above the European Central Bank’s tolerance zone – which leaves the possibility of European interest rate cuts still seem like a shaky proposition.

The British Pound weakened against most of the major currencies this morning as the slumping U.K. housing market continues to sap enthusiasm for the British economy. After rebounding to three-week highs against the U.S. Dollar, the Pound was back on the defensive after it was reported that over twenty-percent of British homebuyers with poor credit histories were falling behind on their payments in the first quarter. The British economy grew at its slowest pace in three years during the first quarter, and Cable has weakened 8.6% against the Euro and 0.6% against the U.S. Dollar so far this year.

The demand for higher yields helped push both the Australian and New Zealand Dollars higher this morning. The Aussie Dollar rallied to quarter-century highs as high interest rates and a healthy outlook lured investors. The New Zealand Dollar, which had fallen out of favor a few weeks ago as investors feared the central bank would cut rates, has found new life since the government introduced a stimulus package built around tax reductions which investors believe will forestall the need for the Reserve Bank to cut interest rates.

USD Snaps 2-Day Losing Streak Vs. Euro

The U.S. Dollar ralliedagainst the Euro this morning as traders increased their wagers that the Federal Reserve will raise interest rates by the end of the year. The minutes of the most recent Fed meeting revealed that policy makers felt that even cutting interest rates to 2 percent was a close call. This reinforces speculation that the Fed has finished cutting interest rates for now.

The New Zealand Dollar gobbled up recent losses this morning, bolstered by a package of tax cuts that made traders feel it is now less likely that the Reserve Bank will cut interest rates. The news boosted the Kiwi to two-week highs against the U.S. Dollar.

The Australian Dollar hit its highest level since it started trading freely in 1983 as investors chased yields. The Aussie Dollar has rallied ten percent this year, making it the second biggest gainer among all the major currencies.

The British Pound rallied against the U.S. Dollar, surging to three week highs against the U.S. Dollar. The Pound benefited from news that the Retail Sales in the U.K. fell less than expected in April, which diminished fears about the health of the British economy.

Euro Rallies on Rising German Business Confidence

The German IFO Institute reported this morning that its index of business confidence rose from 102.4 in April to 103.5 in May. The news defied the market’s expectations that the index would decline to 102 and bolstered the argument that the ECB can maintain its focus on inflation and keep interest rates high instead or worrying about stimulating the economy. The German economy is the biggest in the Euro-zone, so its fortunes tend to harbinger the fortunes of the European economy generally.

The British Pound performed well after the release of the minutes from the most recent Bank of England monetary policy. According to the minutes, policy makers are reluctant to cut interest rates despite a slowing economy due to their fears regarding the accelerating rate of inflation in the U.K.

Commodity currencies rose as commodity prices gained, led by movements in gold and oil prices. Gold rallied for the fifth consecutive day and oil broke USD 130.00 a barrel for the first time. This helped the Australian Dollar hit its highest levels against the U.S. Dollar since 1984 and the Canadian Dollar rallied 0.7% against the U.S. Dollar this morning.

In addition to the commodity news, the Loonie was boosted by speculation that the Bank of Canada may be less keen to cut interest rates than previously expected. Inflation accelerated in April as consumer prices rose 0.8% in April compared with a 0.4% gain in March. The news helped the Loonie enjoy its biggest single session gain in over two months.

USD Tumbles on Surging Oil Prices; Concerns of EU Interest Rate Outlook

The U.S. Dollar suffered its biggest single session plunge in over a month against the Euro. The Euro rallied after a German government adviser said that European Central Bank policy makers may raise interest rates as soon as the financial crisis ends. Also boosting the Euro, German Producer Price inflation accelerated to the fastest pace in nearly two years which makes interest rate cuts less likely.

Meanwhile, oil prices broke USD 129.00 a barrel, a new record. The oil rally was precipitated by hedge-fund manager and legendary oilman Boone Pickens who foresees oil reaching USD 150.00 a barrel this year. This led to anxiety about the strength of the global economy and the resultant heightened levels of risk aversion prompted an unwinding of carry trades, which helped the Japanese yen rally against the U.S. Dollar.

The Australian Dollar rose to its highest levels against the U.S. Dollar since 1984. The Aussie Dollar’s latest surge was triggered by the release of the minutes from the most recent Reserve Bank meeting. Central bank policy makers discussed the possibility of raising interest rates at length during the May 6 meeting, and still worry that inflation in Australia is “uncomfortably high”. The revelation that the central bankers are still biased towards tighter monetary policy drove the currency higher for the fourth consecutive day.

USD Surges Into New Week

A worldwide rally in stock prices helped the U.S. Dollar enjoy its biggest single session rally in over four days, and it also boosted the greenback against the yen as investors took advantage of low interest rates to borrow money in Japan to invest in higher yielding investments elsewhere.

The Icelandic Krona is not normally a newsmaker but it rallied sharply against the Euro and the U.S. Dollar this morning on news that three Nordic central banks have extended an emergency loan offer to Iceland. This has raised hope that the Icelandic central bank will be able to shore up its currency and maintain stability in Icelandic financial markets.

The Australian and New Zealand Dollars, which have often tracked each other over the last couple of years, parted company over the weekend. The Australian Dollar shot up to 24 year highs against the U.S. Dollar while the Kiwi fell. The Aussie Dollar’s good fortune came from rising raw material prices which boost the outlook for Australian exports and hence its economy.

The New Zealand Dollar depreciated on fears that interest rates could fall. On March 14, the New Zealand Dollar hit its highest level against the U.S. Dollar since it started trading freely in 1985. Since then, home sales slumped to 16 year lows and unemployment rose to its highest level since 1989, dragging the New Zealand Dollar down.

USD Weakens on Surging Oil Prices and Low Consumer Confidence

The U.S. Dollar is ending the weekend on the defensive. It was the Dollar’s first drop in four days, precipitated by oil prices which surged to new record highs and the University of Michigan consumer sentiment index. According to the survey consumer sentiment slipped from 62.6 in April to 59.5 in May – a 28 year low. This raised the level of risk aversion in the market and led to an unwinding of some of the Dollar’s gains from this week.

The Canadian Dollar surged to an eight-week high against the U.S. Dollar on the oil price news. As a net exporter of oil, Canada’s currency often tracks the value of oil. Commodities account for over half of Canada’s exports, and prices for commodities are generally stronger which also benefits the loonie.

The South African Rand has enjoyed its biggest weekly gain in six weeks as rising inflation has triggered bets that the central bank will raise interest rates. Reserve Bank Governor Tito Mboweni said that he will raise interest rates “if he gets his way.” – An uncommonly transparent comment from a central banker. Inflation in South Africa is running above the central bank’s tolerance level of six percent.

USD Relatively Mixed Among Majors

It was another upbeat day for the Dollar as rising U.S. stocks drew carry trade flows into the U.S. carry trades are the practice of borrowing money in a country like Japan where interest rates are very low to invest in higher yielding assets elsewhere.

The Dollar was able to shrug off better than expected inflation data because of the generally positive sentiment surrounding the U.S. Dollar which was boosted by complaints of the French Finance Minister who said that he believes the Euro is overvalued by about 20 percent. Consumer prices in the U.S. rose 0.2% in April following a 0.3% gain the previous month.

The Canadian Dollar rallied for a fourth day, building its longest winning streak since February, as rising commodity prices and growing optimism about the potential for global economic growth broadened its appeal.

The Australian Dollar fell against the Canadian Dollar, U.S. Dollar and British pound on news that wage growth slowed in the second quarter. The news ran counter to market expectations and raised doubts about how much upward potential Australian interest rates still have,

USD Rallies Despite Softer U.S. Retail Sales Data

U.S. Retail sales fell 0.2% last month, double the expected decline, but excluding auto sales retail sales actually increased more than forecast, raising speculation that the Federal Reserve will suspend interest rate cuts. Excluding auto sales, retail sales actually grew 0.5%.This speculation was boosted by Federal Reserve Bank of Cleveland President Sandra Pianalto expressed concerns about inflationary pressures.

The resilience of U.S. retail sales coupled with Ms. Pianalto’s remarks diminished the market’s aversion to risk, boosting the U.S. Dollar against most of the major currencies. It also led traders to wade deeper into the carry trade, borrowing money in countries like Japan and Switzerland where interest rates are very low to invest in higher yielding assets elsewhere.

The British Pound weakened against the U.S. Dollar on news that the London property market suffered its biggest price decline in the last 14 years in April. Sterling also weakened against the Euro as the Bank of England finds itself trapped between a rock and a hard place. Economic data like the slumping housing market would suggest interest rate cuts are called for, but inflation in April hit a six-year high, which makes interest rate cuts undesirable.

The Norwegian Krone got traders’ attention this morning as it rallied for a fourth day on speculation that the central bank will continue raising interest rates this year. Inflation levels are surging in Norway and as a net exporter of oil the Krone is often prone to track oil prices, which are near record highs. The prospect for higher interest rates is also making the Krone appealing to carry traders.

USD Emerges From Weekend In Favorable Light

For the first time in three years, futures traders are betting on a gain in the U.S. Dollar versus the Euro. According to a review of futures contracts, the net longs were 21,315 on April 29. For the previous 123 weeks, futures traders were betting against the U.S. Dollar. This news bolsters hopes that the U.S. Dollar’s recent rally could gain traction, especially if the Federal Reserve has finished cutting interest rate for the time being.

The Fed said in its statement after last month’s monetary policy meeting that the “substantial” rate cuts already implemented would help stimulate growth. The Dollar also got some help from news that U.S. employers cut fewer jobs in April than expected. At the same time, there has been a slide in business confidence in France and Germany, the two largest economies in the European Union. This has fostered hope that the ECB may trim interest rates later this year.

The British Pound rallied against the U.S. Dollar this morning after a surge in Producer Prices made it seem less likely that the Bank of England will cut interest rates next month. Although the fallout of the credit crisis has been slowing British economic growth, PPI rose 7.5% year on year, the biggest year-on-year increase since the Office for National Statistics started tracking the figure over twenty years ago.

The Swiss Franc took its biggest tumble against the U.S. Dollar in over a week as stock market rallies around the world encouraged investors to borrow money in countries with low interest rates to invest in higher yielding assets around the world. The Swiss Franc fell almost a full percent against the U.S. Dollar as diminished risk aversion fueled carry trade activity.

Japanese Yen Rallies Into Weekend

The Japanese Yen is on course to achieve its biggest weekly gain against the U.S. Dollar in three months as the market's risk aversion was on the rise yet again. American International Group, Inc reported that it needs USD 12.5 billion to offset sub-prime related write downs, igniting fears that the credit-market losses continue to spread. This triggered an unwinding of carry trades as investors fled from higher yielding opportunities to pay off the loans they took in countries with low interest rates to fund those investments.

The Euro extended its gains from yesterday as the market continued to digest its disappointment over the ECB meeting. The European Central Bank left interest rates unchanged, as expected, but ECB President was much more hawkish in his post policy meeting press conference, saying that inflationary pressures remain very high in the Euro-zone. This erodes hopes that the ECB will start lowering interest rates any time soon.

The U.S. Dollar was able to retake some of its losses in the wake of a Commerce Department report that showed the trade deficit narrowed more than expected in March as imports dropped by the largest amount in over six years.

The British Pound is on course to suffer a third weekly loss against the U.S. Dollar on speculation that the Bank of England will continue cutting interest rates as the effects of the U.S. subprime mortgage meltdown continue to reach into the British economy. The British housing market is in as much of a mess as the U.S. housing market, with British courts issuing the most repossession notices in the first quarter of this year since the 1990s.

Euro Rebounds After Trichet Highlights Inflation Fears

After plumbing eight-week lows versus the U.S. Dollar overnight, the Euro rebounded this morning when ECB President Jean-Claude Trichet told the market inflation management remains the central bank’s first priority. ECB officials believe that inflation in the Euro-zone will remain high for a “rather protracted period”, according to Trichet who spoke at a press conference after the ECB left rates unchanged at their monetary policy meeting. His remarks lead the market to believe the ECB will refrain from cutting interest rates any time soon.

The British Pound rallied against the U.S. Dollar after the Bank of England left interest rates unchanged at 5%. The gains were relatively modest as the rate decision was in line with market expectations.

The New Zealand Dollar tumbled sharply after a government report revealed that New Zealand employers cut the largest number of employees in 19 years. The negative New Zealand data reveals chinks in the nation’s economic armour that could indicate there is less room for interest rates, currently at record highs, to rise any further.

The Canadian Dollar weakened for a second day on news that new-home starts fell at a faster than expected pace last month. The Canadian Dollar has weakened 1.3% against the U.S. Dollar so far this year as America’s economic woes trickle north of the border to infect its largest trading partner, although the Loonie has derived some succor from the high price of oil and other commodities which account for over half of its exports.

USD Rallies after Negative European and Positive U.S. Economic Data

The U.S. Dollar was back on the offensive this morning after it was reported that U.S. productivity unexpectedly rose at a 2.2% annual rate during the first quarter. German manufacturing orders fell 5% in the year ending in March, compared with an 8.9% increase the prior month. Retail sales in the Euro-zone fell 1.6% in March from a year earlier, the steepest drop since data for the Euro-zone started being tracked in 1995.

The negative European news indicates that the global economic slowdown is spreading into the European economy and although it does not change the general expectation that the ECB will leave interest rates unchanged tomorrow, it does create the feeling that the European Central Bank may feel less hawkish about monetary policy deeper into the year.

The British Pound fell sharply against the Canadian Dollar and U.S. Dollar after the Nationwide Building Society reported its index of consumer sentiment in the U.K. plunged to its lowest level since the survey was introduced in May 2004. The Pound was also hurt by news that factory output fell 0.5%, compared with a 0.4% gain last month.

Fannie Mae Losses Puts USD On Defensive

Fannie Mae reported a larger than expected loss this morning, raising the market’s fears that the worst of the credit market crisis may not yet be over. News that Fannie Mae, the largest U.S. mortgage finance company, lost USD 2.19 billion sent the Dollar lower across the board this morning. The heightened risk aversion has caused a retreat from the carry trade, which boosted the Yen 0.4% against the U.S. Dollar as of this writing. The Swiss Franc, another popular currency for funding the carry trade, was also stronger against the U.S. Dollar on the news.

The Euro received a boost from European Producer Price data this morning. Producer Prices rose 5.7% from a year ago, the highest increase since August 2006 and more than the forecasted 5.6% gain. Higher than expected inflation data plays well for the Euro because it raises hope that the ECB will keep interest rates unchanged for longer.

The Canadian Dollar is stronger against the U.S. Dollar this morning, despite news that Canadian building permits unexpectedly fell in March. This negative news was offset by the upward stampede of oil prices because Canada is a net exporter of black gold.

The Australian and New Zealand Dollars were both on the advance this morning, boosted by the U.S. Dollar’s latest misfortunes coupled with their own interest rate outlook. The Australian Dollar rallied towards a 24-year high after Reserve Bank Governor Glenn Stevens indicated that the strength of economic growth and inflation may yet predicate further interest rate hikes. While not expected to raise rates any further, the inflation outlook is expected to keep New Zealand interest rates at record highs until the fourth quarter.

Euro Recovers on Speculation ECB Holds Rates

The U.S. Dollar found itself on the defensive for the first time in three days as speculation that the ECB will leave interest rates at six-highs boosted the Euro. The Euro’s upswing was triggered by ECB President Jean-Claude Trichet, who said he continues to feel there is significant inflationary risk in the European economy. The ECB convenes to set interest rates on May 8.

The Australian and New Zealand Dollars also rose against the U.S. Dollar as commodity prices buoyed them higher. The Australian Dollar was 1.2% stronger against the Euro and the New Zealand Dollar rose 0.7%.

The British Pound fell 0.6% against the Euro and ebbed lower against the U.S. Dollar on speculation that the Bank of England has finished raising interest rates for the time being.

The Swedish Krona rose against the Euro and all but one of the major currencies on expectations that the Swedish Riksbank will leave interest rates on hold longer than the European Central Bank. The Krona was up 0.2% against the Euro and 0.5% against the U.S. Dollar on this rate speculation.

The Canadian Dollar recovered from the three week lows it had been plumbing against its U.S. counterpart this morning. Rising commodity prices, particularly oil which hit record highs, have boosted the Loonie’s fortunes. Commodities account for over half of Canadian exports so the Canadian Dollar is generally sensitive to moves in their values.

USD Rallies Expecting Fed Stops Cutting Rates

The U.S. dollar rallied to five week highs against the Euro this morning, boosted by speculation that the Federal Reserve will suspend rate cuts and allow time for the rate cuts implemented since September to take full effect. The Dollar was also up against the Swiss Franc, Norwegian Krone and British Pound after the Fed cut interest rates a quarter point and said the previous rate cuts were “substantial.”

In addition to sliding against the Dollar, the Euro dropped one percent against the Yen and 0.9% against the Brazilian Real. Recently there has been Euro-zone data showing chinks in the European economic armour and a slight easing of inflationary pressures. The market feels that European interest rate cuts are now a real possibility, perhaps as early as September.

The Canadian Dollar fell sharply against the U.S. Dollar this morning, suffering its biggest single session loss in six weeks on speculation the Bank of Canada will continue to cut interest rates as the Federal Reserve reaches the end of its current loosening cycle. The loonie (CAD) dipped against all but one of the major currencies after Bank of Canada Governor Mark Carney expressed his belief further rate reductions are necessary after a report showed the Canadian economy contracted in February.

The British Pound was down against the Dollar but up against the Euro after the Bank of England’s financial stability report predicted that the worst of the credit crisis is over and that market aversion to risk will diminish in the coming months. The Chartered Institute of Purchasing and Supply also said its factory-price index rose to its highest level since 1999.