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Dollar Fell On Weak Data - 18.5.2011

Asian stocks were mostly higher on Wednesday. Japanese Nikkei Stock Average gained 1% in the Asian session. However US markets were negative yesterday as DJIA lost 0.55%, while Nasdaq and S&P 500 indices remained flat. Oil rose from its almost three-month low yesterday after an independent report showed US gasoline stockpiles dropped and crude inventories declined the most since June. Contracts of crude oil for June delivery recovered from 95.02 yesterday to 99.00 dollars per barrel today. Nevertheless the Energy Department report, according to expectations, may show reserves climbed by 1.5 million barrels. US Dollar In foreign exchange markets, the dollar was a little lower against the euro, as the single currency is supported by expectations of further monetary policy tightening from the European Central Bank. The Dollar Index dropped before the US central bank today releases Federal Open Markets Committee minutes from its April 26-27 meeting, when the Fed’s Chairman Bernanke said the economy still requires monetary support. Fed policy makers kept the target rate for overnight lending unchanged at extremely low levels 0%-0.25%. The Dollar Index, which tracks the greenback against a basket of six major currencies, declined by 0.3% to 75.145 this morning. The dollar also lost some ground amid weak US economic data. The Commerce Department reported yesterday construction of new homes fell in April, as well as building permits. Housing starts declined by 10.6% in April, while economists expected a 3.6% gain. Building permits, which may indicate whether the demand for new homes rises or falls, at the same time fell by 4.0% in April, in comparison with a projected 0.9% rise. Finally, industrial production in April remained unchanged and surprised those who expected a 0.3% gain. Euro The euro was supported by prospects the European Central Bank will raise interest rates despite the region’s debt crisis. Jean-Claude Juncker, who leads the group of European finance ministers, said yesterday that Greece could see a “soft restructuring” if the country undertakes major reforms and accelerates plans to privatize state holdings of about 50 billion euros. “I wouldn’t exclude in a definite way a kind of reprofiling but this is not an isolated answer,” he said in a news conference late Monday, according to Bloomberg. This means that European officials left the door open for a possible extension of debt repayment schedule. According to Reuters, Greece should apply any effort to resolve debt problems as its longer-term debt “is unsustainable,” Juncker said. “If Greece makes all these efforts, then we must see if it is possible to make a soft restructuring of Greek debt. I am strictly opposed to a major restructuring of Greek debt,” he added. Pair EUR/USD recovered yesterday from 1.4120 to 1.4238, while traded today in a narrow range 1.4233-1.4286. Japanese Yen Japanese yen touched yesterday its lowest level in May against the dollar ahead of tomorrow’s reports, which are expected to show Japanese economy shrank in the first quarter. The nation’s gross domestic product fell at a 1.9% annual pace in the three months ended March 31 after a 1.3% decline in the last quarter of 2010, according to economists’ expectations. Weak data may confirm that Japanese authorities will delay monetary stimulus removal and the central bank will keep its easy monetary policy after its two-day meeting on May 20. British Pound British pound strengthened against the dollar, recovering from its six-week low 1.6146 as a report showed prices increased in April more than economists expected, supporting expectations of interest rate increases. UK consumer prices accelerated to 4.5% last month, showing the highest annual pace since 2008. Meanwhile economists expected a 4.1% increase. The core index, which advanced to 3.7% also exceeded expectations of a 3.2% pace. The Bank of England left interest rates unchanged at 0.5% on May 5 policy meeting in order to stimulate economic growth. Minutes of the central bank meeting will be published today and may confirm that interest rates can be raised later this year. Pair GBP/USD rocketed yesterday from 1.6174 to 1.6303, but dropped again today to 1.6240 in Asian trading hours.
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