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Dollar Rallies To Highest Level Versus Euro Since July 2010

14:04, 23rd May 2012

(RTTNews) - The dollar has strengthened further in comparison to its European rivals on Wednesday, but has pulled back versus the Japanese Yen. With concerns over the possibility of Greece exiting the Eurozone running high, investors have flocked to safe havens. Meanwhile, the Bank of Japan and the Bank of England both abstained from further quantitative easing.

On Tuesday, former Greek Prime Minister Lucas Papademos reportedly said that there is a real threat that Greece will exit Eurozone, though he termed it an "unlikely scenario." Mr. Papademos later clarified his statements during a television interview. The ECB has reportedly set up a task force on Greece to deal with a possible worsening of the country's economic situation.

European Union leaders are scheduled to meet informally in Brussels on Wednesday to hammer out an effective plan to rescue the euro in the wake of the threat posed by the probability of Greece exiting the single currency. The summit may address the growing disagreement between Germany and France over eurobonds and on assigning priority to growth over austerity.

The greenback extended yesterday's gains versus the Euro and reached $1.2544 on Wednesday, its highest level since July of 2010. The U.S. currency has been gaining ground since the beginning of May, when it traded around the $1.32 level.

The Eurozone current account registered a seasonally adjusted surplus of EUR 9.1 billion in March compared to a deficit of EUR 1.2 billion in February, the European Central Bank said Wednesday.

Germany's leading index rose for the fourth consecutive month in March, a survey by a think tank showed Wednesday. The Conference Board Leading Economic Index increased 0.3 percent from February, when there was a similar size gain. The index score for March was 104.7, up from 104.4 in February.

David Miles was the sole member of the Bank of England's Monetary Policy Committee to seek more stimulus for the economy at the May meeting, although many members felt that the decision not to beef up the quantitative easing was 'finely balanced.' Nonetheless, members kept the door open for more quantitative easing if situation demands. All nine of the members voted to hold the interest rate at a record low 0.50 percent.

The dollar has also been rising in comparison to the pound sterling since the beginning of the month. The U.S. currency reached a 10-month high of $1.5670 on Wednesday.

Retail sales in the U.K. declined at the fastest pace in two years as April's wettest weather on record damped consumer spending, the latest official figures revealed Wednesday. The Office for National Statistics said that retail sales volume, including automotive fuel, dropped 2.3 percent from a month ago, much faster than the 0.8 percent decrease forecast by economists. This was the biggest drop since January 2010 and followed a revised 2 percent growth in March.

The policy board of the Bank of Japan on Tuesday voted unanimously to abstain from announcing more stimulus after boosting its asset purchases last month to fight deflation and support the economic recovery.

The board also decided to retain the key uncollateralized overnight call rate steady at 0-0.1 percent. The bank noted that the economy is shifting towards a "pick-up phase." The size of the asset purchase and credit facility was also left unchanged.

Fitch Ratings lowered Japan's credit ratings on Tuesday citing rising risks to the sovereign credit profile due to higher public debt ratios. The long-term foreign and local currency Issuer Default Ratings were lowered to 'A+' from 'AA' and 'AA-' respectively. The Negative outlook on ratings was maintained.

The buck pulled back from yesterday's 3-day high of Y80.147 versus the Japanese Yen, back to around Y79.400 on Wednesday.

Japan posted a merchandise trade deficit of 520.27 billion yen in April, the Ministry of Finance said on Wednesday, falling into the red for the sixth time in seven months. The headline figure missed forecasts for a shortfall of 470.8 billion yen following the downwardly revised deficit of 84.5 billion yen in March.

New home sales in the U.S. rose by more than expected in the month of April, according to a report released by the Commerce Department on Wednesday, with the report also showing a notable increase in prices for new homes.

The report showed that new home sales rose 3.3 percent to an annual rate of 343,000 in April from the revised March rate of 332,000. Economists had expected new home sales to climb to 335,000 from the 328,000 originally reported for the previous month.

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