NEWS / Foreign Exchange

the U.S. dollar remains weak

Overall, the U.S. dollar remains weak, despite optimistic news that U.S. durable goods gained 3.4%, in March, more than expected.  New home sales data today revealed a slight pick-up in March, but demand remains much softer than year-ago levels.  The data followed yesterday??™s news that existing home sales also weakened during March.  The market is looking ahead to the beige book report released at 2 p.m. today.  The previous reported indicated some slowing in several Fed districts and said housing was weak.  A rate cut is expected later in the year due to the softening U.S. economy.  On a positive note, the Dow Jones Industrial Average jumped beyond 13,000 for the first time on optimism over earnings and business investment.

Meanwhile, the Euro remains near record high against the U.S. dollar after strong German Ifo business sentiment index, which rose to 108.6 in April from 107.7 in March.  The data revealed that German growth is healthy and cemented expectations that the European Central Bank (ECB) would raise eurozone interest rates by 25 bps to 4% at its June meeting.  Look for the euro to remain strong ahead of this Thursday??™s ECB meeting.
       
The British pound is holding onto gains, supported by solid U.K. growth data.  Gross domestic product rose 0.7% during the first quarter.  Bank of England is expected to raise U.K. interest rates by 25 bps to 5.5% in May as growth is still modestly above trend. 

The Japanese yen remained firm on a weaker U.S. dollar.  News that Japan??™s merchandise trade surplus jumped 73.9% from a year earlier to 1.633 trillion yen in March, helped by a rise in exports of cars and semiconductors, also supported the yen currency. 

The Canadian dollar jumped to new 7-month high to $1.1156, propped up by strong commodity prices, renewed confidence in Canada??™s economic outlook, and continued weakness in the U.S. dollar.  The market is looking ahead to Thursday??™s release of the Bank of Canada??™s monetary policy report, which will provide more details on the bank??™s outlook.  The Bank of Canada yesterday left interest rates unchanged at 4.25% for a seventh straight meeting and indicated that it does not plan to raise rates soon.  
   
The Australian dollar bounced back from yesterday??™s largest one-day percentage fall in seven weeks, supported by U.S. dollar weakness.  Yesterday, the Australian dollar fell after benign first-quarter inflation data slashed expectations the central bank would raise interest rates later this year. 
   
The New Zealand dollar remains strong, ahead of tomorrow??™s central bank meeting where interest rates are expected to remain unchanged at 7.50%.  So far, the New Zealand dollar is the top performer among the 16 most-actively traded currencies. 

The Mexican peso appreciated, driven by Tuesday??™s positive inflation data.  Mexico??™s consumer prices fell 0.21% in the first half of April, bringing the 12-month headline inflation down to 3.96%.  The currency was also supported by a lower than expected March trade deficit of $417 million. 

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