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Dollar Dips Slightly Vs. Euro As Stock Markets Rally

Dollar Dips Slightly Vs. Euro As Stock Markets Rally
3/30/2012 2:27 PM ET

The dollar has weakened slightly versus the Euro on Friday following a rally in stock markets in Euro and the United States. The global growth concerns that have weighed on investors' risk appetites over the last 3 days lessened somewhat at the end of the week. The better than expected U.S. consumer sentiment result and the agreement on an increase to the European firewall appear to have been the catalysts.

Eurozone finance ministers decided to raise the combined size of the region's bailout funds to prevent the possible spillover of the debt crisis in some member states. The ceiling for lending by the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) will be increased to EUR 700 billion, the Eurogroup, which represents euro area finance ministers, said in a statement on Friday.

After today's move, the maximum lending volume of ESM is envisaged at EUR 500 billion by mid-2013. The combined lending ceiling of the ESM and the EFSF will continue to be set at EUR 700 billion, the statement said. Further, Eurozone members have committed to provide EUR 150 billion additional bilateral contributions to the International Monetary Fund.

The Spanish government also announced its proposed budget on Friday. The government plans to cut the country's deficit to 5.3 percent of GDP. The budget includes EUR17.8 billion in government spending cuts. The budget will be discussed in parliament on Tuesday.

The buck retreated against the Euro in early trade Friday, before bouncing back near the middle of the range it has been trading in for the past week. The currency is hovering around $1.33.

Eurozone inflation eased in March but at a slower than expected pace, the flash estimate published by Eurostat showed Friday. Annual inflation fell to 2.6 percent in March from 2.7 percent in February. March's inflation was the lowest since August 2011, but slightly higher than the 2.5 percent consensus forecast.

Retail sales in Germany declined unexpectedly for a second consecutive month in February as concerns regarding rising fuel prices largely eclipsed positive sentiment from strong labor market conditions. The calendar and seasonally adjusted retail sales fell 1.1 percent month-on-month in real terms in February, following a 1.2 percent drop in January. Economists had expected 1.2 percent increase in sales during the month. Sales have fallen in four of the past six months.

The dollar reached a 4 1/2 month low of $1.6036 versus the pound sterling early Friday, but has since recovered slightly, to around $1.60.

Confidence among British consumers declined in March as this month's budget failed to calm households' concerns about the prospects of the economy. Research firm GfK NOP reported Friday that its consumer confidence index fell to -31 in March from -29 in February and January. Economists had forecast the score to remain unchanged at -29.

The greenback has improved versus the Japanese Yen on Friday. The dollar rebounded to Y82.782, after reaching a 3-week low of Y81.821 late Thursday. The unemployment rate in Japan came in at a seasonally adjusted 4.5 percent in February, the Ministry of Internal Affairs and Communications said on Friday - beating forecasts for 4.6 percent, which would have been unchanged from the January reading.

With U.S. personal spending increasing at a much faster rate than personal income in the month of February, the Commerce Department released a report on Friday showing a notable drop in the personal savings rate for the month. The report showed that personal spending rose by 0.8 percent in February following an upwardly revised 0.4 percent increase in January. Economists had expected spending to increase by 0.6 percent compared to the 0.2 percent growth that had been reported for the previous month.

Meanwhile, personal income edged up by 0.2 percent in February, matching the downwardly revised increase seen in the previous month. Personal income had been expected to increase by 0.4 percent.

After jumping to a ten-month high in the month of February, the Institute for Supply Management - Chicago's index of regional business activity fell by month than expected in March, according to a report released by the group on Friday. The ISM Chicago said its business barometer fell to 62.2 in March from 64.0 in February, although a reading above 50 still indicates an increase in business activity. Economists had expected the index to show a more modest drop to a reading of 63.0.

While Reuters and the University of Michigan initially reported a drop in U.S. consumer sentiment in the month of March, a revised reported released on Friday showed that consumer sentiment actually improved during the month. The report showed that the consumer sentiment index for March was upwardly revised to a reading of 76.2 from the preliminary reading of 74.3. With the upward revision, the March reading is up from 75.3 in February and above economists' estimate of 75.0.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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