The US dollar strengthened vs. most major currencies with concerns that CIT Group Inc. will file for bankruptcy, which would be the largest bankruptcy filing since Lehman Brothers last year. News that explosions at two hotels in Jakarta, Indonesia killed eight people and injured 42 others caused jitters in Asia, which also helped the dollar. Data showed that housing starts unexpectedly rose 3.6% in June to an annual rate of 582,000 from 562,000, beating economist forecasts of a fall to an annual rate of 530,000. Building permits increased as well to an annual rate of 563,000 in June, beating forecasts of 524,000.
The euro fell against the dollar as risk aversion again from concerns that the CIT Group will file for bankruptcy overweighed a trade surplus in the Eurozone. The 16-nation Eurozone had a surplus of $1.9 billion in May as imports slipped 2.8%. A separate report showed that construction output fell 2% in May. The International Monetary Fund predicts the euro region will be the worst performing major economy next year.
The British pound fell against the dollar once again on concerns that CIT Group Inc. will go bankrupt which hurt investors’ risk appetite. Also hurting the currency was a report from the IMF that said that UK Prime Minister Gordon Brown risks putting further pressure on sterling unless he curbs Britain’s budget deficit. The IMF predicted that UK debt may double to almost 100% of GDP in the next five years.
Japanese yen weakened against the dollar as Japan’s new top currency official Rintaro Tamaki said that the government would consider stepping in to sell the yen if an abrupt move hurts the economy. According to the Bank of Japan’s quarterly Tankan survey on corporate sentiment, Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010. The yen strengthened vs. other major currencies as fears about a possible bankruptcy of CIT Group Inc. and terrorists bombings in Indonesia helped the safe-haven currency.
The Canadian dollar rose against the dollar as crude oil prices increased. Canada is a key exporter of crude oil. Statistics Canada said the domestic consumer price index fell 0.3% in June from a year earlier, which is its first decrease since 1994. The index of leading economic indicators fell for the tenth consecutive month falling 0.1% in June.
The Australian and New Zealand dollar both weakened against the dollar as decreased risk appetite pushed investors out of the higher-yielding currencies. An increase in commodity prices did not help the two currencies.
