The greenback rallied broadly against major currencies on increased speculation the Federal Reserve will stop cutting interest rates and business confidence slumped in Germany and France.
The single currency tumbled from 1.5897 to 1.5638 on Thursday, the sharpest decline since December, after the release of German Ifo index which fell to 102.4 from 104.8 in March, the lowest since January 2006. An index of sentiment among 4,000 French manufacturers slid to 106 from a revised 108. European Central Bank President Jean-Claude Trichet said the bank is concerned that the euro's surge to a record against the dollar may hurt Europe's economy. French President Nicolas Sarkozy said that the euro has reached an ‘incredible’ level against the dollar. Euro also fell sharply against sterling from 0.8029 to 0.7938.
U.S. currency also came under pressure on the increase in durable-goods orders and an unexpected drop in initial jobless claims. U.S. durable goods, excluding transportation increased by 1.5% (forecast was a rise of 0.4%), following a 2.1% decline for February. U.S. jobless claims fell to 342,000 last week from the previous week’s 375,000.
Interest-rate futures showed an 18% chance that the U.S. central bank will hold the target lending rate at 2.25%, compared with no chance a week ago. There is an 82% likelihood of a cut to 2%. The yield on the two-year Treasury note increased 0.19 percentage point to 2.38% on speculation the Fed is close to the end of its interest-rate reductions.
The greenback rose against the Japanese yen and Swiss franc from 103.32 to 104.55 and from 1.0145 to 1.0385 respectively. The British pound fell from 1.9815 to 1.9685.
The New Zealand dollar weakened from 0.8029 to 0.7938 versus U.S. currency after the Reserve Bank of New Zealand left its benchmark lending rate at a record high of 8.25% but signaled it may lower the official cash rate later this year. Australian dollar also depreciated against the greenback from 0.9483 to 0.9374.
Friday will see the release of Japan’s National CPI and Tokyo CPI, German import price index, U.K. GDP and the U.S. University of Michigan survey.