The greenback retreated against major currencies on Friday as some investors took profit on this week’s rally in the U.S. currency despite the release of better-than-expected economic data.
A government report on Friday showed U.S. personal spending rose in April in line with forecasts and a key measure of inflation moderated. The National Association of Purchasing Management-Chicago said its business index rose to 49.1 this month, higher than the forecast of 48.8, from 48.3 in April. The final University of Michigan survey came in at 59.8, better than the expectation of 59.5.
The single currency fell briefly to 1.5461 against the dollar in European morning after the release of German retail sales data which unexpectedly dropped in April. Sales adjusted for inflation and seasonal swings fell 1.7% in April (forecast was an increase of 0.6%) after the downwardly decrease of 2.2% in March, however, euro rebounded later in the day as eurozone inflation bounded to a historic peak of 3.6% in May, adding speculation that ECB will increase interest rate later this year. European Central Bank President Jean-Claude Trichet said that the central bank will do everything it can to preserve price stability and reinforce expectations of low inflation.
The British pound weakened briefly to 1.9683 on speculation that a weakening economy may force the Bank of England to cut interest rate later this year, however, cable rebound strongly due to dollar’s weakness against other European currencies together with the renewed cross buying in sterling especially versus the Japanese yen. Gbp/jpy rallied from 207.76 to 209.33 after triggering stops above previous chart resistance of 209.00.
Interest-rate futures showed a 27% chance the Fed will raise its target rate by a quarter- percentage point to 2.25% on Sept. 16. The greenback traded inside 105.23-105.74 range on Friday. U.S. currency rose briefly to 1.0528 and then tumbled to 1.0414 on renewed cross buying in chf.
The greenback rose against the Canadian dollar from 0.9875 to 0.9981 after a government report showed Canada economy unexpectedly shrank by 0.3% in the first quarter, (expectation was a 0.3% increase), fueling speculation the central bank will cut borrowing costs next month. The Bank of Canada lowered the target lending rate by a half-percentage point to 3% on April 22 and policy makers meet on June 10 to decide on rates.
Germany, eurozone and U.K. manufacturing PMI, U.K. Halifax house prices, U.S. construction spending and ISM manufacturing on Monday; U.K. PMI construction, eurozone GDP, PPI, U.S. revised durable goods, factory orders and U.K. nationwide consumer confidence on Tuesday; Germany, eurozone and U.K. PMI service respectively, eurozone retail sales, U.S. ADP employment, labour cost, productivity and U.S. ISM non-manufacturing on Wednesday; Germany factory orders, U.S. jobless claims on Thursday; Germany industrial production, U.S. non-farm payrolls, unemployment rate, average hourly earnings and wholesale inventories on Friday.