RTTNews - The assault on the dollar continued on Wednesday as traders remained convinced that the buck's dramatic run-up earlier in the year was way overdone, and that the global economy is on the mend.
With risk appetite rising along with stocks, the dollar has been battered of late, particularly against the sterling and resource-linked currencies. The euro joined the party today, hammering the dollar on speculation that the worst of the euro zone recession may have passed.
The European Central Bank resisted temptation to lower interest rates to zero in the midst of the worst financial crisis since the great depression, leaving the euro in position to benefit from traders looking for riskier plays.
The dollar plunged to 1.3810 versus the euro, its lowest level since the first week of 2009. While, the dollar remains well off a record low set last July, November's multi-year high of 1.2328 seems far a distant memory.
Germany's Federal Statistical Office said the producer price index or PPI dropped 2.7% year-over-year in April, after falling 0.5% in March. This was the lowest annual rate of PPI since June 1987. Economists were looking for a decline of 1.3%. On a monthly basis, producer prices declined 1.4% in April, compared with a 0.7% fall in the preceding month.
The dollar remained on the backfoot versus the red-hot sterling, dropping to a 6-month low of 1.5775. With the loss, the dollar moved further away from a 23-year high of 1.3501, set back in January.
Minutes from the Bank of England showed that the Monetary Policy Committee unanimously decided to hold the key interest rate at a record low of 0.5% and to increase the size of the asset purchase programme in early May.
The dollar came under pressure versus the yen after data revealed that the Japanese economy contracted less that forecast, but still at a record annual pace. The buck dropped to 94.84, coming close to a 2-month low.
Last quarter, the Japanese economy contracted at the fastest pace since records began in 1955.
The Japanese economy contracted by a record 15.2% year-on-year in the first three months of the year after the revised 14.4% contraction in the previous three months, the Cabinet Office said in a preliminary report. Meanwhile, economists had expected a 16.1% contraction.
Compared to the previous quarter, GDP fell 4% in the first quarter of 2009, marking the fourth consecutive quarter of decline.
With oil prices above $60 a barrel, the dollar was pummeled by its Canadian counterpart, slipping to a 7-month low of 1.1370.
Canadian consumer prices rose 0.4% in the 12 months to April 2009, down from the 1.2% increase in March, according to data released Wednesday morning by Statistics Canada.
While upward pressure on the Consumer Price Index (CPI) came primarily from food, the slowdown was due mainly to price declines for energy and reduced upward pressure from non-energy shelter components.
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