The greenback rose against the Japanese yen to 105.45 on Monday as the release of U.S. tame inflation and the rise in U.S. stocks led investors to buy higher-yielding assets funded by loans in Japan. U.S. consumer price index rose 0.2% in April (forecast was a rise of 0.3%), following a 0.3% increase the previous month.
Former U.S. Federal Reserve Chairman Paul Volcker warned the United States could face a 1970s-style period of skyrocketing inflation if investors lose confidence in the buying power of the U.S. dollar. San Francisco Federal Reserve Bank President Janet Yellen said later in the day that the Fed is determined to avoid a 1970s-style inflation spiral in the U.S. economy.
The single currency weakened to 1.5396 on comments from French Econ Minister Lagarde who said that many experts agree that the single currency is overvalued, however, euro rebounded to 1.5487 later in the day after the release of tame U.S. inflation data.
The British pound fell to 1.5396 after the release of the BOE inflation report. BOE Governor King said that the MPC is facing its most difficult change yet and that patience is needed as the U.K. economy rebalances.
U.S. currency fell against the Canadian dollar to 0.9964 before rebounding on short-covering as crude oil prices retreated. Australian dollar and New Zealand dollar fell from 0.9427 to 0.9303 and from 0.7646 to 0.7591 respectively.
Thursday will see the release of Japan's machine orders, German CPI, GDP and HICP, eurozone GDP and HICP, U.S. jobless claims, Empire state manufacturing, cash flows, capacity utilisation, industrial production, Philadelphia Fed survey and NAHB housing market index