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Dollar Levels Off As China Lowers Outlook

Dollar Levels Off As China Lowers Outlook

The dollar weakened against the Yen on Monday and also retreated slightly against both the Euro and the pound sterling. The unexpected announcement from China that it had lowered its forecast for economic growth for the current year had an impact on investors' willingness to take on more risk. Premier Wen Jiabao announced Monday, at the annual meeting of the National People's Congress in Beijing, that the country now expects full year growth to be 7.5 percent. China has maintained a growth target of 8 percent for the past eight years.

The slowdown was attributed to a decline in export growth, due to weaker demand from the U.S and the European countries, as well as China's own tight monetary policy.

China has pledged to maintain a "prudent" monetary policy. The People's Bank of China decided to cut the banks' reserve requirement rate by 50 basis points last month, for the second time in three months. The move was intended to boost lending amid sluggish economic growth.

The dollar had been steadily gaining against the Yen for the past month. The greenback pulled back from a 10-month high of 81.862 Monday and reached a low of 81.146.

The buck gave back ground versus the Euro and the pound sterling on Monday as well. The dollar retreated from 1.3186, its highest level against the Euro since February 20, and hit a low of 1.3241. The greenback also worsened against the pound sterling, hitting a low for the day of 1.5876.

The Eurozone private sector contracted more than expected in February, according to survey results from Markit Economics. The final Composite Output Index fell to 49.3, from 50.4 in January. The flash estimate had been for a reading of 49.7. The overall contraction in output reflected a renewed decline in service sector activity.

Data from Eurostat released Monday showed an unexpected rise in Eurozone retail sales in January.

Retail sales climbed by 0.3 percent month-on-month, following a 0.5 percent decline in December. Economists had expected sales to fall by 0.1 percent. Eurozone investor confidence continued to improve in March, according to results of a survey by Sentix. The confidence index came in at -8.2, compared to -11.1 in February. Economists expected an even stronger improvement to -5.

U.S. factory orders fell less than expected in January, according to a report released by the Commerce Department on Monday. Orders fell by 1.0 percent, compared to a revised 1.4 percent increase in December. Economists had expected orders to decrease by 1.6 percent.

The ISM non-manufacturing index released Monday increased to 57.3 in February, from 56.8 in January. The increase surprised economists, who had expected the index to dip to 56.0. The index rose to its highest level in a year.

by RTT Staff Writer

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