The greenback rose to a 3-month high against the Japanese yen as U.S. GDP increased in first quarter of 2008 as expected, U.S. stocks rebounded and crude oil tumbled, brightening the outlook for the world's biggest economy. The Dow Jones industrial average ended up 52.19 points or 0.41% to 12646.22. The Standard & Poor’s 500 Index was up 7.33 points or 0.53% at 1398.17. Crude oil for July delivery fell about 3.5% to about $126.11 a barrel on Thursday after reaching record high of $135.09 on May 22.
U.S. economy expanded in first quarter of 2008 at a 0.9% annual pace, came in line with the expectation. U.S. durable goods orders released on Wednesday fell by a smaller-than-expected 0.5% last month, bolstering a view that the Fed may increase its interest rates later this year from current 2.0%.
Federal Reserve Bank of Dallas President Richard Fisher said the central bank will raise interest rates as consumers expect faster inflation. Interest-rate futures showed a 32% chance the Fed will raise its target rate by a quarter- percentage point to 2.25% on Sept. 16. There is about a 70% probability of an increase of at least a quarter-point by year-end.
Ten-year Treasury note yields reached 4.135%, the highest level since December, increasing the allure of the dollar-denominated assets. The greenback rallied against the Japanese yen to 105.88 on Thursday as the correlation between the dollar-yen rate and two-year Treasury note yields was 0.97 in the past year.
The single currency tumbled from 1.5665 to 1.5485 versus the dollar while U.S. dollar rallied against Swiss franc from 1.0365 to 1.0525. The British pound fell briefly to 1.9674 after the release of much weaker than expected U.K. Nationwide house price and then rebounded to 1.9802/03 on active cross buying in sterling especially versus euro and the Japanese yen.
Friday will see the release of Japan manufacturing PMI, Tokyo CPI, unemployment rate and industrial production, German retail sales, eurozone unemployment rate, U.S. PCE index, Chicago PMI and University of Michigan survey.