Currencies: Dollar gains on euro, slips against yen
TOKYO (MarketWatch) — The euro lost ground against the U.S. dollar in Asian trading Monday, pressured by a report that Germany is expecting a budget shortfall.
Weaker tax revenue, soaring welfare bills and new spending for bank bailouts and fiscal-stimulus measures could increase Germany’s debt by more than 100 billion euros next year, The Wall Street Journal reported on its Web site Monday.
The report “was used as a good excuse to take euro/U.S.dollar down … below $1.39, dragging everything down with it,” said Sue Trinh, senior currency strategist at RBC Capital Markets.
Against the yen, the dollar “was also heavy in the wake of this story, selling off … to 95.80 [yen],” Trinh said in emailed comments.
The euro traded at $1.3886, down from $1.3952 in late North American trading Friday. The dollar bought 95.98 Japanese yen, down from 96.28 yen late Friday.
The yen also benefited from rising risk aversion after the World Bank predicted Monday that the global economy will shrink 2.9%, a deeper fall than the 1.7% contraction it predicted in March.
The bank also warned that international capital will continue to flow out of developing nations, with international capital flows projected to fall to $363 billion in 2009 from their peak of $1.2 trillion in 2007. The world has entered an era of slower growth that will require tighter and more effective oversight of the financial system, the bank said in a statement.
Currency markets had a muted reaction to Japanese data reports released earlier in the session, though they underscored that Japan’s economic picture is brightening.
A survey jointly compiled by the Ministry of Finance and the Cabinet Office showed the business sentiment index for large companies was minus 22.4, improving from minus 51.3 in the previous quarter. See Economic Report on Japan data.
The improvement was greater among large manufacturers, whose index rose to negative 13.2 from the previous survey’s negative 66.
A separate survey published Monday by the Ministry of Economy, Trade and Industry also showed improvement in the service sector. The tertiary index, which measures spending on services, rose 2.2% in April from the previous month
The main focus this week will be Federal Open Market Committee’s meeting on Tuesday and Wednesday. The Fed is widely expected to leave its Fed funds rate target in a range of 0% to 0.25%, but investors will be watching to see whether the central bank unveils any changes to its asset purchase program to further boost liquidity.
Currencies: Dollar gains on euro, slips against yen
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