THE U.S. DOLLAR IS FALLING …..

[Anonymous]

The U.S. dollar weakened to a new 2-year low versus the euro
The
U.S. dollar weakened to a new 2-year low versus the euro this morning
after a report showed core U.S. consumer prices rose by less than
expected in March, supporting a view that U.S. interest rates may be
set to move lower. The Labor Department stated that consumer prices
rose 0.6 percent last month.  Excluding food and energy costs, they
expanded 0.1 percent, below economists’ median forecast for a 0.2
percent increase. Another U.S. government report showed that the pace
of home construction rose 0.8 percent in March to a rate that beat
analysts’ predictions, although the rise was well below the previous
month’s increase. Expect the dollar to remain on the defense throughout
today’s session as the market looks to data releases set for later in
the week for additional clues on the health of America’s economy.

The Euro hit a fresh two-year high against the US dollar overnight, driven higher by the release of US consumer price data.

The
British pound rallied to $2 overnight, touching levels not seen for
almost 15 years as news of accelerating British inflation last month
stoked expectations of a further rise in borrowing costs from the Bank
of England. Data showing a 3.1 percent annual jump in British consumer
price inflation in March – the highest since comparable records began
in 1997 – served as the impetus for the pounds appreciation. The
psychologically significant two-for-one level was last touched just
before the currency’s ejection from the European Union’s Exchange Rate
Mechanism in September 1992. Currency market analysts believe that
further pound gains are likely. A move above $2.01 would herald the
highest level in over quarter of a century.
The Chinese yuan closed
slightly higher against the dollar overnight, stabilizing after its
third-biggest one-day fall of the year on Monday as dollar supplies in
the market felt a temporary pinch. Monday’s fall came after the
People’s Bank of China set the yuan’s daily mid-point at a
post-revaluation high of 7.7220, indicating the market was at odds with
the central bank’s apparent willingness to let the yuan rise toward
7.7200. A recently reduced flow of dollars into the domestic foreign
exchange market, as indicated by China’s sharply lower trade surplus in
March, meant that the yuan’s appreciation could continue at the slower
pace seen since February. Global weakness of the Japanese yen, whose
movements often influence other Asian currencies, would also have a
negative impact on yuan appreciation.

The Canadian dollar added
to its near-five month highs against the US dollar this morning, as oil
prices rose while weaker-than-expected U.S. inflation data kept the
U.S. currency on the defensive. A one percent gain in crude oil futures
and a 0.6 percent monthly rise in U.S. consumer prices gave traders few
reasons to step away from the currency.

The Australian dollar
consolidated within its recent range overnight, trading just below
17-year peaks against the U.S. currency as investors took a breather
ahead of key data next week which could give fresh clues on domestic
monetary policy. The currency is expected to be broadly supported by
rising gold and commodity prices and increased demand for carry
trades.  On the economic data front, the currency was oblivious to a
quarterly survey from National Australia Bank which showed Australian
businesses reported strong trading conditions last quarter, generating
more demand for labor and leaving the economy with little spare
capacity.

The Mexican peso remained sidelined against the US
dollar as Mexican equities consolidated after hitting record highs last
week.  In other economic news, Citigroup downgraded the country’s
benchmark stock index to “underweight” after investors had overreacted
to a pension reform law approved by Congress in March, which seemed to
have no tangible short-term benefit. Mexican stocks have gained almost
11 percent in the last month, boosted in part by investor enthusiasm
over an alliance in Congress, made public about mid-March, to overhaul
the public sector pension system.

[Author]

April 18, 2007 at 2:35 PM