RTTNews - The U.S. dollar plunged to a 5-month low against the British pound as a rise in stocks prices reduced demand for currencies perceived as safe havens. The dollar also declined to new multi-day lows against the European currency and the Swiss franc and eased from a 1-week high against the Japanese yen.
The dollar and the yen are viewed as safe-haven currencies and both currencies rise, when investors turn risk averse and fall when risk appetite improves.
Following an overnight rally on Wall Street, Asian and European stocks rose today, boosted by signs of hope for the U.S. housing market. Financial stocks advanced following reports that three major banks intend to repay TARP funds borrowed from the Federal Reserve, fueling speculation that the worst in the financial crisis might be nearing an end. The strengthening of the US dollar against the local currency and higher crude oil prices also supported stocks.
U.S. homebuilders became more optimistic in May, according to industry data released yesterday. This was the second consecutive month of improvement as attitudes among industry players are now at their highest level since late last summer.
Along with earnings from a major home improvement retailer Lowe's out earlier yesterday, the report helped improve sentiment towards the housing sector.
Economists are looking for signs of stability in the industry, after the housing collapse over the past couple of years led to the financial turmoil that has sent the economy into what could be the worst recession since the Great Depression.
The National Association of Home Builders said its index of sentiment rose in May to a level of 16. This was up from the mark of 14 recorded for April. The reading for the measure, known as the Housing Market Index, represented the highest mark since last September. The index reached a low of 8 in January and spent 5 consecutive months in single-digits before rising in April.
Investors also regained confidence after seeing better-than-expected earnings from home improvement retailer Lowe's (LOW). The company announced first-quarter net income of $0.32 per share, beating Wall Street analysts' estimate of $0.25 per share. Shares advanced on the heels of the earnings report, climbing away from a six-week low set on Friday.
The U.S. Treasury Secretary Timothy Geithner commented yesterday that although the economy is stabilizing, there are still some difficulties ahead. In an early afternoon interview, Geithner stated: Even as growth starts to turn positive, which will happen...it's not going to feel better for a long time for millions of Americans.
The US dollar declined to a 5-day low of 1.3658 against the European currency during early deals on Tuesday. The next downside target level for the greenback is seen around 1.366. The euro-dollar pair closed Monday's North American session at 1.3562.
The euro rose against most of its major counterparts as German economic sentiment jumped by much more than expected.
Mannheim-based Centre for European Economic Research, or ZEW, said today its economic sentiment indicator for Germany rose to 31.3 in May from 13 in April, while the forecast was for an increase to 20.
The gauge for the current conditions in Germany fell further to reach minus 92.8. It was in contrast to economists' expectations for an improvement to minus 90 from the previous month's minus 91.6.
Further, the ZEW said its economic sentiment indicator for Eurozone increased to 28.5 from 11.8 in the previous month and well above the expected reading of 18. The indicator for the current economic situation in the Eurozone remains almost unchanged on a very low level. The corresponding indicator dropped by 0.2 points to minus 93.2 points.
Against the British pound, the US currency edged down to 1.5516 during Tuesday's early deals. This set the lowest point for the dollar since December 18, 2008. On the downside, 1.557 is seen as the next target level for the greenback. The pound-dollar pair closed Monday's North American session at 1.5350.
The Office for National Statistics said today in a report that UK consumer price annual inflation eased to 2.3% in April from 2.9% in the previous month. Economists had expected the annual rate to slow to 2.4%. On a monthly basis, consumer prices climbed 0.2%, slower than the expected rise of 0.4%.
The retail price index stood at 211.5 in April, up from the prior month's 211.3, representing a 0.1% monthly increase.
The US dollar lost ground after hitting a 3-week high of 1.4400 against the pound on April 22. Thus far, the greenback has lost around 7.09%.
The greenback edged down to a 4-day low of 1.1091 against the Swiss franc during today's early deals. If the pair falls further, 1.102 is seen as the next target level. The US dollar closed Monday's New York deals at 1.1144 against the franc.
The greenback that declined to a new multi-month low of 1.0981 against the franc on May 13 strengthened thereafter and appreciated around 3%.
The US dollar lost ground after hitting a 1-week high of 96.72 against the Japanese yen during Tuesday's early European deals. The dollar-yen pair is currently trading at 96.29, with 95.1 seen as the next target level. The pair closed yesterday's New York trading at 96.32.
The US dollar that rose to a new multi-month high of 101.46 versus the yen on April 6 has lost around 6.7% thus far.
In economic news from Japan, a revised report from Japan's Ministry of Economy, Trade and Industry revealed today that industrial production rose 1.6% in March from the previous month, following a 9.4% decline in February. The ministry confirmed the initial estimate for March. Year-on-year, production plunged 34.2% in March.
Further, the report showed that capacity utilization moved up 0.8% from prior month, reversing February's 11.9% decrease.
Wall Street will turn its attention to the Commerce Department report on housing starts and building permits, which is slated to be released at 8:30 AM ET. The headline housing starts figure is expected to climb to 527,000 from March's figure of 510,000. The report is also expected to show building permits at 530,000 for April, up from previous month's level of 516,000.
Minneapolis Federal Reserve Bank President Gary Stern is due to speak to the Willmar Lakes Area Chamber of Commerce in Willmar, Minnesota at 1:15 PM ET.
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