The US dollar rose vs. most major currencies

The US dollar rose vs. most major currencies as continuing risk aversion prompted investors into the reserve currency. Consumer confidence fell to 64.6 in July from 70.0 in the previous month, in the latest University of Michigan Consumer Sentiment Index. The US trade deficit narrowed to $26 billion in May, its lowest level in almost a decade, as the import price index gained 3.2% on the month.

The euro fell against the dollar as a drop in global equities increased fears of a slowdown in the global economic recovery. Germany, Europe’s largest economy, reported a rise in exports of 0.3% in May, which showed signs that the export-heavy country was beginning to stabilize. A 2.1% contraction in imports caused Germany’s trade surplus to widen to EUR 10.3 billion. French industrial output also had an unexpected increase of 2.6% in April, while Italian output was unchanged in May. Economists had forecast that production would drop 0.2% in France and 1.1% in Italy.

The British pound weakened against the dollar as producer prices fell more than expected leading to fears of deflation. Domestic producer prices fell an annual 1.2%, compared to forecasts of a 0.8% fall.

The Japanese yen continued its climb as speculation the global economic recovery may be delayed encouraged investors to unwind yen-carry trades.

The Canadian dollar declined against the dollar as a fall in crude oil prices below $59 per barrel hurt the commodity-linked currency. Statistics Canada released an employment report that showed the economy shed -7,400 jobs in May, better than forecasts of a 35,000 reduction. The unemployment rate rose to 8.6% from 8.4%. Canada had a trade deficit of CAD 1.42 billion, the largest since records dating back to 1971, narrowing the trade surplus to CAD 1.48 billion. Housing prices fell 0.1%, compared to forecasts of a 0.5% fall.

The Australian and New Zealand dollar both fell against the dollar as a continued fall in Asian equities spurred investors to increase risk aversion and sell higher-yielding assets. Interest rates of 3% in Australia and 2.5% in New Zealand are much higher compared to near zero interest rates of the US and Japan.