The US dollar fell against a basket of currencies as yesterday's statement from the US Federal Reserve offered a more upbeat view of the US economy, helping boost risk sentiment yet weighing on the safe-haven greenback.  The Fed maintained its pledge to keep interest rates low for an extended period and slightly upgraded some of its economic forecasts.  In other news, a government report showed the number of US workers filing new applications for unemployment insurance fell slightly less than expected last week.  The improvement in the labor market remains slow but claims data should have little effect on a market where all the focus is still on the euro periphery.

The euro rose against the US dollar, rebounding from a one-year low the previous day on hopes a bail-out plan for debt-stricken Greece would be finalized soon. Gains for the single currency were capped however, as details of the Greece package were limited, leaving uncertainties about the timing and implementation of any deal.  Nonetheless, the market is seeing a bigger package for Greece, covering three years, as a bigger backstop and that is helping to tame some investor fears. The euro was also supported by euro zone economic sentiment jumping much more than expected in April, pointing to strengthening economic activity.

 

Sterling strengthened versus the US dollar, tracking gains in the euro after a pledge from European officials that debt aid for Greece will come soon suppressed worries about euro zone credit risk. Data showing rising UK house prices also helped to support the pound.  UK house prices rose 1 percent in April, increasing for the second straight month and suggesting the housing market is improving after weakness in the sector in 2008 drove the broader economy into recession.  Gains in the pound were capped, however, and the UK currency hovered near a four-week low versus the greenback as signs a UK general election may result in a hung parliament heightened uncertainty about the next government. 

The Japanese yen was flat versus the US dollar as yesterday's US Federal Reserve statement extended an optimistic view of the US economy and its' recovery, helping boost risk sentiment yet weighing on the safe-haven Japanese currency.

The Canadian dollar extended gains against the US dollar and is poised to reach parity again on renewed risk sentiment that included a reaffirmation that Canada will be raising interest rates before the United States. Higher interest rates in Canada with no move in the United States, or the expectation of higher rates, will attract capital and stoke demand for the Canadian currency.

The Australian dollar was firm against the US dollar, boosted by speculation the Reserve Bank of Australia (RBA) may raise rates by 25 basis points to 4.50 percent next week.  The New Zealand dollar fell against the US dollar after the Reserve Bank of New Zealand (RBNZ) left rates unchanged at a record low of 2.5 percent, as expected, but sounded less hawkish than some had hoped for.  It signaled the first rate rise could happen over the coming months.

Indicative rates:

EUR/USD

1.3275

USD/JPY

93.86

GBP/USD

1.5284

USD/CAD

1.0017

USD/MXN

12.2320

USD/CHF

1.0809

AUD/USD

0.9294

NZD/USD

0.7237

10-Year Treasury Note Yield:  3.773%

Dow Jones Industrial Average:  11,173.44 + 128.70