US Dollar Pulls Back as Dow Jones Industrials Average Climbs Above 11,000

•US Dollar Pulls Back as Dow Jones Industrials Average Climbs Above 11,000
•Euro Turns Blind Eye to Fitch Downgrade as EU Stands Ready to Bailout Greece
•British Pound Maintains Rally Following the Jump in Inflation
•Canadian Dollar Stumbles on Smaller-than-expected Employment Gain

US Dollar Pulls Back as Dow Jones Industrials Average Climbs Above 11,000

The US Dollar fell sharply against the Euro as the US Dow Jones Industrials Average traded above the key 11,000 mark for the first time in nearly two years. Persistent rallies in the Dow and S&P 500 have limited demand for the safe haven US currency, while rumors that the Euro Zone and International Monetary Fund had arranged a €20-25 Billion financial aid package for Greece likewise sunk the Greenback. The Dollar had seen earlier strength on news that Fitch downgraded Greece’s sovereign debt rating by an unexpected two notches—leaving it just one notch above Junk/Speculative grade debt. Yet one Greek financial website claimed that a Greek bailout was imminent and quite quickly reversed earlier dollar strength. The fact that no other news outlets corroborated said information makes us quite skeptical, however, and it will be critical to watch any and all developments in Greek issues through the days ahead.

An otherwise uneventful day of fundamental developments left the USD to trade off of broader financial market flows, but it will be critical to watch the outcome of key news events in the days ahead. Top events on the ledger include US Consumer Price Index inflation numbers, Retail Sales results, further housing-related growth results, and the often market-moving University of Michigan Consumer Confidence report. Any one of these events could force significant short-term US Dollar volatility, and it will be critical for traders to monitor any and all outsized surprises.

Euro Turns Blind Eye to Fitch Downgrade as EU Stands Ready to Bailout Greece

The single-currency extended the overnight advance during the U.S. trade and rose to a high of 1.3494 on Friday as the rise in risk appetite carried into the North American session. However, a leaked document from the Bundesbank continued to show the central bank’s resistance against the joint IMF and EU bailout for Greece, with Germany policy makers arguing that the program would ultimately turn the Bundesbank into a “money-printing machine.” At the same time, Fitch Ratings cut its credit rating for Greece to BBB- from BBB+, with the group holding a negative outlook for the ailing economy, while EU officials announces that they are prepare to provide funding as policy makers aim to support the nations operating under the fixed exchange rate system.

British Pound Maintains Rally Following the Jump in Inflation

The British Pound held higher during the U.S. session as producer prices in the U.K. rose at the fastest pace in 16 months, and the Bank of England may hold an improved outlook for the region as the economic recovery gathers momentum. The National Institute of Economic and Social Research said that Great Britain averted a double-dip recession and noted GDP expanded 0.4% in the first-quarter, but went onto say that the “period of depression is likely to continue for some time” as the private sector remains weak. As a result, the MPC may hold a dovish policy going into the second-half of the year as Governor Mervyn King expects price growth to fall back below the 2% target, and the central bank is likely to maintain an accommodative policy going forward as it aims to encourage a sustainable recovery.

Canadian Dollar Stumbles on Smaller-than-expected Employment Gain

The Canadian Dollar slipped against its US namesake on marginal disappointments in the highly-anticipated March Employment Report. Canada added 17.9k jobs in the month of March, noticeably below consensus forecast of a 26.0k gain and the Unemployment rate unexpectedly remained unchanged on a small rise in the participation rate. The USDCAD jumped nearly 80 pips following the release and underlined the level of disappointment with said result. Underlying details showed that all job gains came from part-time employment, while full-time positions fell a noteworthy 14.2k through the period. In itself, said detail suggests that employers remain cautious and perhaps holding back from more expensive full-time hires until conditions improve further. Yet it serves to note that Full-time jobs jumped by a whopping 60.2k in February, and March’s pullback may be seen as a natural correction after such strength.

In all, fundamental outlook for the Canadian economy remains fairly optimistic. Certainly the threat of a strong exchange rate hurts important goods-producing export sectors, but it is interesting to note that Goods-producing payrolls climbed an impressive 39.8k—the best such result since September, 2009. A relatively quiet week of event risk ahead suggests that the USDCAD may nonetheless continue to track Crude Oil prices quite closely. It will be critical to watch whether recently high-flying oil prices can set further highs through upcoming trade.

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