The US dollar is trading higher across the board as investors took profit on a recent rally in commodity-linked currencies ahead of this weekend's two-day G8 finance ministers' meeting in Italy . Foreign exchange is not on the agenda, but may be brought up. The dollar was under pressure earlier this week on speculation improving global economic outlook will spur demand for higher-yielding assets. Today, investors were mainly taking profit, which triggered an upswing in the dollar. Some market players think this may be just a corrective move and will not last. Expect the greenback to be dictated by investors' risk appetite in the near term.
Meanwhile, comments from Japanese Finance Minister Kaoru Yosano saying Japan 's government is confident about the outlook for U.S. Treasuries boosted the US dollar against the Japanese yen . Kaoru's comment suggests that Japan will continue to buy U.S. Treasuries. Japan is aware that excess selling of U.S. Treasuries will strengthen the yen and hurt corporate profits. However, Japan will sell Treasuries if the dollar value depreciates considerably. Expect Yen losses to be limited on hopes that Japan is starting to pull out of the recession.
In Europe , news that Euro zone industrial production plunged a record 21.6 percent in April prevented the euro from building on this week's prior gains. Today's poor data dented risk appetite. The recent surge in the euro since February is seen hurting the region's production. The European Central Bank left interest rates unchanged on June 4 and said yesterday that economic growth may resume in the second half of 2010.
The sterling also fell on profit-taking. Dovish comments from Bank of England (BOE) officials voicing concerns about how sustainable the UK recovery is also weighing on the sterling. This contrasts with yesterday's comment from BOE policy maker Andrew Sentence said the UK recession may be “bottoming out”.
The Canadian dollar surrendered gains, hurt by oil prices falling back below $72 a barrel today, and the central bank's governor voicing concerns about the currency's strength may hurt growth. The loonie was also impacted by a stronger US dollar, which was under pressure this week as investors bought higher-yielding currencies. Oil prices hit $72.68 on Thursday, the highest level since October 20.
The Australian and New Zealand dollars also fell, giving up this week's gains on profit taking, but demand for higher-yielding currencies is still there. Thus, losses were limited.
10-Year Treasury Note Yield : 3.7817%
Dow Jones Industrial Average : 8,754.54 -16.40