NEWS / Foreign Exchange

The U.S. dollar fell against the yen amid concerns that strong economic growth in China

The U.S. dollar fell against the yen amid concerns that strong economic growth in China may spark a near-term interest rate hike.  China??™s first quarter GDP grew 11.1%, while consumer price inflation hit 3.3% in March, caused Chinese stocks to drop 4.5%, the sharpest fall since February 27th when the Shanghai Composite Index fell 9.0%, and unwinding of carry trades.  Look for clues on US interest rates from a Philadelphia Federal Reserve survey of business activity and a speech from the San Francisco Fed President later today.

The euro weakened against the yen as the market sold the euro-zone currency due to the unwinding of yen-financed carry trades into higher-yielding currencies. 
       
The British pound eased off 26-year peaks versus the dollar and plunged versus the yen as investors scaled back carry trade positions in the high-yielding British currency.  Look for sterling to remain strong as interest rates are likely to rise in May to 5.5% and 5.75% or higher later this year. 

The Japanese yen strengthen across the board as the drop in Chinese stocks shook global markets overnight causing the Nikkei 225 Index to weaken 1.67%.  Look for the Bank of Japan to boost interest rates later this year as their economy continues to expand.
   
The Canadian dollar hit a 5-1/2 month high versus the US currency after higher-than-expected domestic inflation firmed expectations of future monetary tightening.  Higher oil prices drove Canada??™s inflation rate to its highest level in eight months in March, cementing expectations that the Bank of Canada??™s next move will be a rate hike, rather than a cut. 
   
The Australian dollar retreated from a fresh 17-year peak against the US dollar as a recovery in the Japanese yen saw investors unwind risky carry trade positions. 
   
The Mexican peso and stocks fell, as concerns that China may have to raise interest rates to cool off its economy rattled global equities markets.  Mexican stocks were also hurt by a report that suggested weakness in the US labor market, their largest trading partner.

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