Lesser worries over disruptions to the global growth scenario
and hopes that sovereign woes may enhance the appeal of European
government bonds to savvy yield-hungry Asian investors has the
dollar on the back foot late in the week. The dollar meanwhile
faced a bashing after the Commerce Department stuck with its
low-beat assessment of growth in the three-months through March
while initial claims data also disappointed investors. The dollar
tumbled versus its major risk partners.
U.S. Dollar
- Comments from Minneapolis Fed President Kocherlakota yesterday
failed to strike any chords of inspiration with dollar bulls. He
again pointed to potential commencement of monetary tightening
before the year in the event that the end of quantitative easing
delivers its desired objectives. Perhaps economists have a hard
time believing that his hope doesn't jive with the still-lofty
projection of 8.5% for year-end unemployment. The dollar index
remains lower after an increase of 10,000 in initial claims data to
424,000 Thursday morning and has fallen almost 0.5% to 75.58 having
reached 76.27 midweek. A second round reading of first quarter GDP
failed to improve on an earlier 1.8% pace of growth in the three
months ending March.
Euro
- The overall healthier tone to risk appetite on Thursday follows a
report in today's Financial Times, which cites the CEO at the
European Financial Stability Facility as pushing the appeal of debt
obligations from less well-off nations amongst Asian investors.
Yesterday the EFSF issued €4.75 billion of bailout bonds on behalf
of Portugal and according to EC data, 16% of the issue was bought
by Asian investors. The next tranche in June will be keenly sought
by Chinese buyers according to the article. China is already the
largest holder of U.S. government debt and has been advised
domestically to diversify its holdings. While there may be truth to
the story and while there is likely room within Asian portfolios
for higher-yielding peripheral paper, it must be noted that China
has bought paper at lesser yields than where we stand today. In
other words this exercise is ongoing and shouldn't mark a
turnaround for bond attitude as this is hardly a new factor.
Nevertheless buyers drover the euro back above $1.4200 in early
going in New York below where it currently sits.
British pound
- Dollar weakness allowed the pound to build on a midweek advance
following what could only be called a lame GDP report for the first
quarter. The pound advanced to as high as $1.6333 in overnight
trading before paring gains back towards $1.6300 ahead of the
release of U.S. data. A CBI report today showed the impact of
rising prices and a squeeze on British incomes with the
consumer-services index for the three months through May falling to
its weakest since November of 2009. The index fell to -23 from -11.
Consumer spending fell to its lowest during the first quarter in
two years according to government data. Consumer-services selling
prices rose as did employee costs causing households to hold back
spending according to the trade body. Within the business-services
sector, hiring intentions rose to the highest since May 2008. The
pound eased per euro to 86.84 pence.
Japanese yen
- Shortly after the dull U.S. GDP and initial claims data the yen
surged versus the dollar reversing weakness earlier in the session
from ¥82.02 to ¥81.15. Selling pressure mounted after the dollar
broke through the daily low but escalated to drive the pair through
even Monday's low for dollar/yen.
Canadian dollar
- Crude oil is only marginally in the black on Thursday, yet this
follows a couple of days of stronger rebounds that have lifted the
price of a barrel of crude to $101.50 heading in to the start of
U.S. driving season this weekend. However, the better tone to
risk-taking met with a dip in the fortunes of the U.S. labor market
and failed to encouraging dealers to put back growth-sensitive
plays into their portfolios. The Canadian dollar weakened as a
result and today buys $1.0205 U.S. cents.
Aussie dollar
- The Aussie moved in the opposite direction partly due to
rebounding Asian stocks but moreover on account of a greater than
hoped for increase in capital expenditure during the first quarter,
where investment projects accelerated by a 3.4% clip. The Aussie
was dragged higher by rising commodity prices after a 1.6% gain for
the CRB index midweek, while building on that theme, RBA Deputy
Governor Ric Battellino noted that the health of the Aussie was
reflection of "strong global growth" as demand for Australian
natural resources remained firm. The Aussie is close to its session
high and recently traded at $1.0600 U.S. cents.