Dollar Holding Steady Vs. European Competitors

12:57, 7th August 2012

(RTTNews) - The dollar is holding its ground in comparison to its major European competitors on Tuesday, but is climbing in comparison to the Japanese Yen. Tuesday's session has been relatively quiet, with little major news to impact investor sentiment.

The Italian economy remained stuck in recession in the second quarter as austerity measures weighed heavily on economic activity. The fourth successive contraction has raised concerns about the ability of the government to bring order to its public finances.

Gross domestic product dropped 0.7 percent sequentially, slower than the 0.8 percent decline in the previous quarter, preliminary data from the statistical office Istat showed Tuesday. Economists had forecast a similar 0.8 percent decline for the second quarter.

Italy's surging borrowing costs sparked speculation that the country is on the verge to seek European rescue fund. But, Prime Minister Mario Monti played down such rumors. Monti warned Europe that the region is facing the threat of a psychological disintegration due to the impact of the debt crisis, in an interview over the weekend.

The dollar has remained relatively flat in comparison to the Euro on Tuesday, holding steady around the $1.2425 level.

German factory orders declined more-than-expected in June as both domestic and foreign demand deteriorated, which raised fears that the economy shrunk in the second quarter. Factory orders fell 1.7 percent month-on-month, data from the Federal Ministry of Economy and Technology showed Tuesday. It was worse than expected 0.8 percent drop and reversed the 0.7 percent increase in the previous month.

The greenback reached a 4-day low of $1.5683 Tuesday, but has since inched back to around $1.5645.

Retail sales in the United Kingdom rose unexpectedly in July as warm weather and Olympics boosted sales of food and drinks, a report from the British Retail Consortium (BRC) revealed Tuesday. Retail sales values rose 0.1 percent on a like-for-like basis annually in July. Economists had forecast a 0.2 percent drop.

Production in the British industrial sector shrank notably in June mainly due to extra holidays for the Queen's Diamond Jubilee celebrations, the latest figures from the Office for National Statistics (ONS) showed Tuesday. However, the decline was not as steeper as expected and is likely to lead to an upward revision in the second quarter GDP figures.

Industrial production fell 2.5 percent month-on-month compared to expectations for a 3.5 percent drop. This followed a 1 percent increase in May and 0.6 percent decline in April. Production has now fallen for fifteen consecutive months.

Japan's Finance Minister Jun Azumi said Tuesday that the government will extend its dollar-loan program by six months through March 2013 in an attempt to deal with the strong currency. He stressed on the need to closely watch the risks posed by the strong yen to Japan's economy.

The buck has rebounded from Monday's low of Y78.133, to around Y78.710 against the Japanese Yen on Tuesday.