The US dollar weakened against most major currencies after data showed the US economy contracted at a slower than expected pace in the second quarter, boosting morale amongst investors that the recession may be moderating. However, a sharp drop in consumer spending dampened some of that sentiment, but not enough for investors to take a chance in riskier assets. Data from the National Association of Purchasing Management-Chicago business barometer rose to 43.4 from 39.9 in June, indicating an improvement in business activity and a slowing in contraction.
The euro extended gains against the dollar after data showed business activity in the US rose in July to its best showing since last September and eurozone unemployment was lower than expected, boosting risk appetite. Unemployment in the eurozone was 9.4% in June.
The British pound initially weakened against the dollar as investors fled to the safe haven dollar, but recouped most of those losses after stronger than expected US economic data.
The Japanese yen strengthened against the dollar after stronger than expected US economic data. Although the yen rallied against the dollar, Japanese core consumer prices fell a record 1.7% in the year to June due to weaker household demand for goods pushing Japan further into deflation.
The Canadian dollar continued its rally against the US dollar as growing views that the global economy may be on a road to recovery, whet market appetite for risk. Although oil prices dipped below $66 and Canada’s economy contracted for the 10th straight month in May, the loonie remains strong. Many investors have been eyeing the US equity futures for direction.
The Australian and New Zealand dollar strengthened against the US dollar as buoyant regional stock markets and talks of a rate hike boosted the Aussie and the Kiwi. The Aussie was further supported by stronger housing data as prices crept up in recent months.
