NEWS / Foreign Exchange

Euro hit a fresh two-year low against the US dollar

The U.S. dollar fell across the board initially as finance chiefs from the world??™s rich nations gathered to offer assurances the global economy has enough strength to overcome a US slowdown.  Euro-zone, China, and India are still producing strong growth, unaffected by rising US mortgage defaults.  The G7, which comprises of the US, Britain, Canada, France, Germany, Italy, and Japan are officially meeting at 1830 GMT.   However, the US dollar recouped some of its losses after G7 said it would not comment on the world??™s currencies.
            
Euro hit a fresh two-year low against the US dollar, after University of Michigan sentiment survey suggested that US consumers were growing more pessimistic about the economy and rose to an all-time high against the yen after G7 comments said that language on currencies would not change.

The British pound rose to a 2-1/2 month high versus the dollar, supported by expectations that the Bank of England will raise interest rates in May.  A rise in benchmark rates are currently driven by wage inflation as the cost of living rises.  Look for sterling to further strengthen as carry trades have returned.
       
The Japanese yen fell to a record low versus the euro after comments from the G7 this morning.  Due to the return of the carry trade, where investors borrow cheap in yen to fund purchases of higher-yielding currencies and profit on the spread, Japanese exports have an advantage in global markets, keeping the yen weaker in the near term. 

The Canadian dollar weakened against the greenback, coming off its 4-1/2 month highs as data showed a much weaker-than-expected Canada trade surplus for February.  The surplus shrank to C$ 4.83 billion, well below the expected C$6 billion, as a 15-day rail strike during the month stalled Canadian exports.  

The Australian dollar jumped to a fresh 17-year high against the US dollar and a 10-year high against the Japanese yen, due to carry trades and speculation interest rates might rise later this year.  The New Zealand dollar hit a fresh 23-month peak after domestic retail sales data came in much stronger than expected, upping the risk of an interest rate rise later this month.
           
The Mexican peso sidelined against the US dollar and Mexican stocks were also flat due to a slump in US consumer sentiment, but helped by benign US inflation data.

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