US Data & Greece Dominate Currency Markets

The US dollar finally took a breather after a strong rally sparked a week ago on better than expected US inflation data and supportive comments from Janet Yellen. The dollar eased 10 points in the Asian session to trade at 97.03. This week there has been a steady flow of stronger than forecast economic data from the US. On Thursday pending home sales soared above forecast better than it had been in 9 years.  Pending Sales of Existing Homes in U.S. Increased 3.4% in April.  More Americans than forecast signed contracts to purchase previously owned U.S. homes in April, indicating a pickup in the housing market during the busy spring selling period.

US markets were negative, the Dow Jones closed at 18126 was down 37 points, the S&P 500 lost 3 points to close at 2121 points and the NASDAQ declined 9 points to 5098. European markets were also negative; with the FTSE up 8 points at 7041, CAC lost 45 points to close at to 5138 and DAX declined 94 points to 11678.

The dollar took a breather  this morning, after a sharp run-up fuelled by expectations for a US interest rate hike this year pushed it to a 12-year high against the yen. The greenback bought ¥123.72, from ¥123.96 in New York where it briefly touched a ¥124.46, its highest level since December 2002.

 The surge against the yen underscores growing expectations for the Federal Reserve to raise rates this year, while Japan’s central bank considers further easing monetary policy to prop up a faltering economy. The chances of a rate hike – which tends to boost demand for dollar-denominated assets – have increased following positive US economic data and comments from Fed chief Janet Yellen last week that rates would go up “at some point this year.”

 Data this morning showed household spending unexpectedly fell in April while inflation and factory output were also lackluster – disappointing figures likely to fuel talk that the Bank of Japan (BoJ) will announce more stimulus this year. “The BoJ will be forced to take additional easing at some point this year,” Enrique Diaz-Alvarez, chief risk officer financial services firm Ebury, said.

The euro recovered this morning to trade at 1.0953 adding 5 points with little supportive data.  The euro rose as Greece fought to reach an agreement with its lenders to avoid an imminent default, but mixed signals on the state of the negotiations kept other markets little changed.  Creditors said progress in talks with Greece was too slow and a deal was still out of reach, a euro zone official told Reuters. But Greece’s government said it intends to reach an agreement with its lenders by Sunday.