The single currency rallied against the dollar on Friday as German business confidence rebounded more than economists median forecast from a 26-year low in April (increased to 83.7 from 82.2 in March and compared to estimated gain of 82.3). Optimism for recession in eurozone will ease later in 2009 encouraged investors to buy more risky assets and euro surged broadly and touched session highs of 1.3302 versus the dollar, 129.10 against the yen and two-week high of 0.9082 versus the sterling before stabilising.
Meanwhile, the British pound dropped in early trading session after data showed U.K. economy shrank the most in 30 years in the first quarter. Gross domestic product in Britain fell 1.9 percent from the final three months of 2008 and slumped 4.1 percent yearly as manufacturing and business services posted record declines. The sterling fell to as low as 1.4576 against the dollar in New York morning before rebounding, climbed higher to 1.4774 due to cross-related demand on the back of rising U.S. stock markets (gbp/yen rose from session low of 141.17 to 143.84).
Demand for greenback fell as extreme risk aversion eased and stocks in Europe and Wall street rose. The dollar declined against most of the major currencies and dropped to as low as 96.63, 1.1350, 0.7240, 0.5740 and 1.2073 versus Japanese yen, Swiss franc, Australian dollar, New Zealand dollar and Canadian dollar respectively. In late New York session, the ICE future dollar index traded lower by 0.74 percent to 84.772.
Currently, market participants are closely monitoring any developments about the U.S. bank stress tests and the meeting of Group of Seven finance ministers in Washington as they discuss the global economic crisis. Fed officials said on Friday that the top 19 U.S. banks need to hold a ‘substantial’ amount of capital above regulatory requirements to weather a potential worsening of the economic recession.
On the data front, orders for U.S. durable goods fell 0.8 percent in March compared with 3.4 percent drop and a revision of 2.1 percent gain in February. A separate report later in the day showed purchases of new homes in the U.S. last month decreased 0.6 percent to an annual pace of 356,000 after a 358,000 rate in February.
Data to be released in the upcoming week include German Gfk index and import price index, and U.S. Midwest manufacturing on Monday, Japan retail sales, U.K. CBI distribution trade and U.S. consumer confidence on Tuesday, eurozone business climate and economic sentiment, U.S. GDP and FOMC rate decision on Wednesday, New Zealand RBNZ rate decision, Japan industrial production and BOJ rate decision, U.K. nationwide house price, eurozone unemployment, Canada PPI, and U.S. PCE, jobless claims, personal income, personal spending, Chicago PMI and Philadelphia Fed survey on Thursday, and Japan National CPI and Tokyo CPI, U.K. PMI manufacturing, and U.S. factory orders, University of Michigan survey and ISM manufacturing on Friday.