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Dollar climbs as US economy shows signs of recovery

Mon, May 12 2008, 12:39 GMT
by Benny Menashe

Finotec Group Inc.

Poor economic data revealed last week for the Euro Zone, as well as the outlook that Fed will keep interest rates steady, pushed the Dollar up to two-month highs against the Euro and a basket of major currencies. The US currency traded at 1.5392 against the Euro at 7:00am GMT. The Dollar’s rebound gained traction as a Bloomberg survey to 31 economists showed the ECB will lower its 4 percent main refinancing rate to 3.75 percent by the end of September and 3.50 by year-end, as well as US employers eliminated fewer jobs in April than forecast by economists. “We may very well have seen the bottom in the dollar”, said Stephen Jen, the global head of currency research at Morgan Stanley in London, who forecasts the dollar will rise to $1.40 per euro by year-end. “The dollar has regained some traction lately. Against the euro, the U.S. dollar is around 25 percent undervalued.”

The US currency strengthened against the Yen, as last week’s losses were excessive, taking into account that Fed will stop cutting interest rates. The Dollar traded at 103.77 against the Yen at 8:00am GMT. Traders believe that Dollar buying by some Japanese players, which are grappling with the steep rise in commodity prices, helped boost the US currency. The Euro was little changed against the Yen on the early morning trading. The Euro traded at 159.28 against the Yen at 7:00am GMT.

Weak economic data came from Australia and New Zealand last week, showing more signs of a global economic slowdown, boosting the Dollar; the US currency traded at 0.9373 against the Australian Dollar and at 0.7641 against the New Zealand Dollar at 6:00am GMT. Australia’s business confidence hit the low since September, a survey revealed, as well as a housing finance fell sharply in the same country. In New Zealand a report showed housing prices gains slowed for an eighth straight month and are projected to fall. Speculation that Fed is now on hold and that other Central Banks will be forced to cut interest rates, in order to boost economy, is offering some support to the Dollar’s rebound; New Zealand’s Central Bank will cut the interest rate up to 125 basis points over next year.

The British Pound traded at 1.9473 against the Dollar and at 0.7905 against the Euro at 7:00am GMT. Good economical data was released to the British currency early this morning, concerning the Producer Price Index, which was released above expectations, at 2.4%. The Pound was boosted by this good news and recovering from last week’s losses against the Dollar. Also, later today will be revealed the Royal Institution of Chartered Surveyors (RICS) House Price Balance, which measures the price change of homes in the UK.

Today's Economic Events

Published on  Mon, May 12 2008, 12:43 GMT