The US dollar gained against most major currencies but extended declines against the euro on rising risk tolerance after two key economic indicators. A report showing a surprisingly strong rebound in US consumer confidence, jumping to 39.2 in April from a revised 26.9 in March, the highest in five months and the biggest one-month rise since November 2005, slightly soothed concerns over the recession blighting the world's largest economy. Data also showed the pace of decline in US home prices slowed, suggesting a bottom for the housing market. Despite these reports, however, the greenback is still gaining ground against most major currencies as safe haven flows pour in on renewed concerns about the US banking sector while fears about an outbreak of swine flu are also weighing on sentiment. The Wall Street Journal is reporting that Bank of America and Citi are two of the banks that will be required to raise capital due to the results of the stress tests; and that in BoA's case the capital shortfall is in the billions of dollars. This report, combined with concerns over swine flu, should keep pressure off the greenback in the short term.
The euro strengthened against the US dollar as risk tolerance rose after data showed the pace of decline in US home prices slowed, suggesting the housing market may be nearing bottom and a rebound in US consumer confidence. However, renewed concerns about the US banking sector and fears about an outbreak of swine flu limited gains for the euro.
Sterling slipped against the US dollar as ongoing concerns about the spreading of swine flu lifted risk aversion, although the pound trimmed earlier losses after a poll showed unexpectedly strong UK retail sales. Still, the possibility that swine flu will spread further should continue to limit the pound's recovery.
The Japanese yen hit a one-month high against the US dollar and a seven-week high against the euro after the Wall Street Journal reported regulators have told Citigroup and Bank of America they may need to raise more capital based on early results of government stress tests on banks' ability to withstand the economic crisis. The yen also gained as hedging surged by Japanese exporters on Tuesday ahead of Japan 's Golden Week string of national holidays from Wednesday through May 7.
The Canadian dollar fell against the US dollar, pressured by worries about swine flu, weakness in oil prices and concerns about the stability of the US banking sector. World stocks and the price of oil fell on Tuesday as a report that major US banks may need more capital added to concerns in the market about a possible flu pandemic. Oil prices, a key Canadian export, extended Monday's losses and fell toward $49 a barrel as fears over the flu fuelled demand concerns.
The Australian dollar fell over a US cent on Tuesday and hit a one-month low against the yen as investor risk-aversion was fuelled and stocks hit by a report in the Wall Street Journal that US regulators have told Citigroup and Bank of America they need to raise more capital. The New Zealand dollar fell more than 2 percent as the swine flu outbreak kept investors wary about risky assets. While the flu worries are currently weighing on sentiment, the market is also waiting for Thursday's interest rate review by the Reserve Bank of NZ, which is expected to result in another 50 basis point cut to 2.5 percent.
10-Year Treasury Note Yield : 2.981%
Dow Jones Industrial Average : 8,056.56 + 31.30