Dollar fluctuates on U.S. rate speculations, European debt worries

13:11, February 27, 2010      

Email | Print | Subscribe | Comments | Forum 

The dollar fluctuated against major currencies during the past week on speculations about U.S. interest rate outlook and European sovereign debt worries.

Comments by U.S. Federal Reserve Chairman Ben Bernanke drove the dollar lower as the central banker reiterated that interest rates would stay at ultra low levels for some time. But the greenback found support from safety-haven demand spurred by weak economic data and Greece's debt problems.

The Fed continue to anticipate a moderate pace of economic recovery and a slow decline in the unemployment rate, Bernanke said when he gave his semiannual assessment of economic conditions and monetary policy in the testimony to the Congress on Wednesday and Thursday. Inflation is expected to remain subdued in the long term.

Bernanke said that economic conditions -- including low rates of resource utilization, subdued inflation trends, and stable inflation expectations -- are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

In response to the substantial improvements in the functioning of most financial markets, the Federal Reserve is winding down the special liquidity facilities it created during the crisis and normalizing its lending to commercial banks through the discount window.

An increase of discount rate announced last week and some other changes are in response to the improved functioning of financial markets. These adjustments are not expected to lead to tighter financial conditions for households and businesses and should not be interpreted as signalling any change in the outlook for monetary policy, Bernanke said.

The U.S. real Gross Domestic Product (GDP) growth was revised up to 5.9 percent in the fourth quarter of 2009 from 5.7 percent previously estimated, the Commerce Department said on Friday. The major reasons for the upward revision were stronger spending on equipment and software and a greater contribution from inventories.

Much of the strength last quarter was due to inventory rebuilding and temporary stimulus, said analysts of IHS Global Insight. The underlying growth in the economy is in the 2.5 percent to 3 percent range. It will remain in the range throughout much of 2010, analysts said.

Most U.S. economic reports released during the week suggested a bumpy recovery. U.S. new home sales tumbled by 11.2 percent in January to its lowest level in nearly 50 years, according to the Commerce Department. Analysts had forecasted an increase of 5 percent.

Existing-home sales dropped 7.2 percent to a seasonally adjusted annual rate of 5.05 million units in January, the National Association of Realtors reported. January's plunge is further payback for the first-time homebuyers' tax credit that expired on November 30. It was widely expected that the second tax credit will push home sales higher in the first quarter, but so far it appears to be having a minimal effect.

The Conference Board's Consumer Confidence Index fell sharply in February by almost 10 points to a level of 46.0. Both the present situation index and the expectations index fell sharply, indicating that consumers lost confidence in current economic conditions and economic outlook.

The loss of confidence was connected with a confluence of unusual factors, including sovereign debt issues in Europe, slow improvements in employment market conditions and lacking of a job stimulus legislation, said analysts of IHS Global Insight.

The Reuters/University of Michigan consumer sentiment index fell slightly in February to 73.6 points. The modest decline was more in line with general economic conditions than the sharp drop of the Conference Board's index, analysts said. Consumer spending, which is expected to grow by a modest rate in 2010, will not be a major driver for the recovery.

S&P/Case-Shiller home price indices for 10 and 20 largest metropolitan areas each rose for the seventh-straight month by 0.3 percent in December after seasonally adjusted, the Standard & Poor's reported. Prices increased year-over-year in several major cities including Boston, Denver, Washington, DC, San Diego, Dallas and San Francisco. However, home prices have further to fall with unemployment rate and foreclosures on record high levels.

U.S. initial claims for jobless benefits rose unexpectedly to 496,000 last week from 474,000 previously, the Labor Department reported. Consensus forecasts had expected a decline to 460,000. Initial jobless claims has increased 12 percent in the past two weeks, partly due to adverse weather conditions in eastern part of the country. Analysts of Nomura Economic Research said the report added downside risk to their forecast for nonfarm payroll employment for February.

U.S. new orders for durable goods rose by 3.0 percent in January, propelled higher by a surge in defense and non-defense aircraft, according to the Commerce Department. Orders for core nondefense capital goods (excluding aircraft) fell by 2.9 percent, with machinery orders 9.7 percent lower.

Greece's public and private workers participated in a national strike on Wednesday over government austerity measures intended to ease the country's debt crisis. The euro remained under pressures amid persisting worries over debt problems of Greece and other eurozone countries.

The 16-nation single currency rebounded on Friday after it was reported that some German lawmakers said Germany is considering buying Greek bonds through state-owned lender KfW Group. The report is yet to be confirmed. In the recent weeks, there have been many rumours about possible European aid for Greece but no concrete aid has been announced.

The European Commission denied on Monday there was any European Union plan for 20 to 25 billion euros aid for Greece, referring to a report in German weekly Der Spiegel on Saturday that Germany's Finance Ministry had sketched out such a plan.

Fitch Ratings downgraded credit ratings of four largest Greek lenders on Tuesday. The rating agency said Greece's economic crisis will hurt asset quality. Standard & Poor's, another major rating agency, warned on Wednesday that it may lower Greece's debt rating to junk status. Moody's Investors Service said on Thursday that it could cut Greece's sovereign debt rating within months unless the country could meet goals to cut budget deficit.

The euro bought 1.3620 dollars in late Friday New York trading, about 0.2 percent higher than a week ago. The British pound fell 1.4 percent to 1.5248 dollars. The dollar rose 1.1 percent during the past week to 1.0519 Canadian dollars, and fell 0.3 percent to 1.0742 Swiss francs. It fell 3.1 percent to 88.88 Japanese yen.

Source: Xinhua
  • Do you have anything to say?


Special Coverage
Major headlines
Editor's Pick
  • Palestinians in Damascus protest Israel's shrine plan
  • U.N. envoy sees basis for solution of Greece-Macedonia name dispute
  • U.S. remains committed to peaceful resolution on Iran's nuclear issue: Clinton
  • Thailand's supreme court rules to confiscate 1.4 bln USD of Thaksin's frozen assets
  • China, Zambia reaffirm to seek stronger relationship
  • Fall/Winter 2010/11 women's collection at Milan Fashion Week
Most Popular
Hot Forum Dicussion