Major Currency Pairs: Euro Drops To 6-Week Lows Against Dollar

The euro dropped to six-week lows against the broadly stronger dollar on Friday after better-than-expected U.S. consumer sentiment data fuelled speculation that the Federal Reserve may start to scale back its easing policies this year. The robust data bolstered speculation over a possible near-term exit from the Federal Reserve’s USD85 billion a month asset purchase program. The data came after a series of economic data releases on Thursday raised doubts over the strength of the U.S. economic recovery. Official data showed that consumer price inflation and housing starts fell more-than-expected in April, while jobless claims posted the largest increase in six months. The euro remained under pressure amid speculation that the European Central Bank is preparing to cut deposit rates into negative territory. The deposit rate is the rate paid by the ECB on overnight deposits by euro zone banks. In the week ahead investors will be focusing on Wednesday’s Federal Reserve minutes, as well as testimony on the economic outlook and monetary policy by Fed Chairman Ben Bernanke.
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GBP/USD
The pound fell to six-week lows against the broadly stronger dollar on Friday as stronger than forecast U.S. consumer sentiment data fuelled speculation over a possible near-term exit from the Federal Reserve’s asset purchase program. The robust data bolstered expectations that the Federal Reserve could begin to scale back its USD85 billion a month asset purchase program this year. The data came after a series of economic data releases on Thursday raised doubts over the strength of the U.S. economic recovery. Official data showed that consumer price inflation and housing starts fell more-than-expected in April, while jobless claims posted the largest increase in six months. In the U.K., the Bank of England revised up its forecast for growth on Wednesday, saying it now expected the economy to expand by 0.5% in the current quarter, up from 0.3% in the three months to March. The bank also said it expects inflation to remain above its 2% target for most of the next two years. Markets will also be watching Wednesday’s Bank of England minutes and Tuesday’s U.K. inflation data.
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USD/JPY
The broadly stronger dollar rose above 103 per yen for the first time since October 20008 on Friday after data showed that U.S. consumer sentiment rose more than expected in May, climbing to an almost six year high. official data on Thursday showed that the economy expanded by 0.9% in the first quarter, outstripping expectations for 0.7% growth, bringing the annualized rate of growth to 3.5%. The data indicated that Japan’s new monetary easing measures are bolstering consumer spending, while Japanese exports were boosted by the weaker yen. In the week ahead investors will be focusing on Wednesday’s Federal Reserve minutes, as well as testimony on the economic outlook and monetary policy by Fed Chairman Ben Bernanke. Markets will also be watching the outcome of Wednesday’s Bank of Japan policy meeting.
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USD/CAD
The broadly stronger U.S. dollar rallied to two-month highs against the Canadian dollar on Friday after weak Canadian inflation data sparked speculation over a possible rate cut by the Bank of Canada. Statistics Canada said the annual rate of consumer price inflation fell to 0.4% in April from 1.0% the previous month and well below the Bank of Canada’s targeted inflation range of 1% to 3%. The report attributed the largest drop in inflation since October 2009 to lower gasoline prices. Gasoline prices fell 6.0% in April compared to a year earlier, also the largest decline since October 2009. The data came after a series of economic data releases on Thursday raised doubts over the strength of the U.S. economic recovery. Official data showed that consumer price inflation and housing starts fell more-than-expected in April, while jobless claims posted the largest increase in six months.
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