The dollar fell against euro as reports from U.S and China showed global economy is on the road to recovery boosted demand for higher-yielding assets. In addition, the ICE index, which tracks the greenback against a basket of currencies fell to year low of 78.59 in late New York morning trade as U.S. government said it will own a majority of General Motors Corp., removing some uncertainty about the ailing U.S. auto industry. However, the euro trimmed gains as investors tend to take profits in New York afternoon.
In the European morning trade, euro extended recent rise to 1.4246 against the dollar after the better-than-expected German manufacturing PMI (39.6 versus forecast of 39.1) and the Eurozone manufacturing PMI which also beat economists’ expectations (40.7 versus 40.5). However, the euro retreated in New York morning as the U.S. core PCE data, the major measure of U.S. inflation, came out at 0.3% in April higher than forecast of 0.2% and the ISM manufacturing data showed the manufacturing sector is still contracting even at a slower rate (42.8 in May compared to 40.1 in April). Somehow, the single currency’s gain against the greenback was limited as currency’s Nobel Laureate warned the euro’s steepest three-month rally against the U.S. dollar is sapping the earnings of the European exporters and delaying its recovery. The greenback pared most of the losses in late New York afternoon due to profit-taking purposes.
The British pound has maintained its firm undertone and it advanced above 1.6400 level versus the dollar as reports on manufacturing and house prices from last week added credence to the view that U.K. is recovering from a recession. Cable gave up some gains against the greenback in late New York session due to long liquidation. Cross buying also helped, eur/gbp dropped to 2009 low of 0.8615 while gbp/jpy rallied to other fresh 2009 at 159.18.
The Japanese yen fell broadly as investors became more risk-aggressive and resumed carry trades. Eur/jpy rallied to 137.25, aud/jpy jumped to 78.57 while gbp/jpy touched the other multi-month high of 159.18.
Earlier in the day, although the Purchasing Manager’s Index for China to a seasonally adjusted 53.1 in May from 53.5 in April, the reading is still above 50, which means the purchasing activity in China was still expanding in May. The data drove the china A-share market up more 3.30%.
Data to be released on Tuesday includes Australia current account, RBA rate decision, Switzerland GDP, U.K. housing price, construction PMI, Eurozone unemployment and U.S. pending home sales data.