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Dollar Strengthens Versus Euro As Investors Flock To Safe Havens

Dollar Strengthens Versus Euro As Investors Flock To Safe Havens

Weaker than expected economic reports from both China and Europe sparked huge sell-offs in the stock markets of both Europe and the United States on Monday. The U.S. currency has strengthened against the Euro as the risk appetite of investors has shrunk, but the dollar has weakened versus the Japanese Yen.

Investors were rattled by the news that Socialist leader Francois Hollande won the most votes in the first round of the French Presidential Elections over the weekend. The incumbent, Nicolas Sarkozy, finished in second place. Sarkozy has worked closely with German Chancellor Angela Merkel in the past to resolve European debt issues and investors fear a disruption of that relationship.

The turmoil in the Netherlands may cause the country to lose its AAA rating. Budget talks fell apart over the weekend, which led to calls for a new election. Media reports stated that Mark Rutte, the Dutch Prime Minister, may resign. According to various sources, Jens Weidmann, the head of the German Bundesbank, is rejecting calls for the European Central Bank to lower interest rates and offer further support to banks and bond markets.

The greenback has rebounded from nearly a 3-week low of $1.3227 versus the Euro on Monday and has climbed to $1.3135.

Eurozone private sector contracted at a faster-than-expected pace to a 5-month low in April, indicating a sharp deceleration in economic activity at the start of the second quarter. The composite output index, which measures performance of both manufacturing and services, dropped unexpectedly to 47.4 in April from 49.1 in March, a flash estimate published by Markit Economics showed Monday. Economists had forecast the reading to rise to 49.3.

The services Purchasing Managers' Index fell to 47.9 from 49.2 in March. Likewise, the manufacturing PMI dropped to 46.0 from 47. The services PMI was forecast to rise to 49.3 and the manufacturing index to 48.1.

German private sector growth eased in April with activity reaching levels close to stagnation, a survey by Markit Economics revealed Monday. The composite output index, that measures performance of both manufacturing and services, fell to a five-month low of 50.9 in April from 51.6 in March. A reading above 50 indicates expansion of the sector, while a reading below 50 suggests contraction. Economists expected a reading of 49.3.

The Spanish economy slipped back into recession in the first quarter of 2012, fueling concerns that the country may fail to meet the deficit targets, which may force the government to seek an international bailout.

Bank of Spain said that based on the as-yet incomplete information available, gross domestic product shrank 0.4 percent quarter-on-quarter. This followed a 0.3 percent fall in the fourth quarter, which was the first decline in activity since the final three months of 2009.

The dollar has leveled off against the pound sterling on Monday, following the week long decline it endured last week, which brought the currency to nearly a 6-month low of $1.6148. The greenback has inched back to around the $1.6115 level.

The buck has pulled back from Friday's 2-week high of Y81.770 versus the Japanese Yen on Monday and has fallen to around Y81.085.

Japan's leading index rose for a second consecutive month in February, but the index reading was revised down from its initial reading, according to a final report from the Cabinet Office, published Monday. The leading index rose to 96.3 percent in February from 94.6 in January. The February reading in the preliminary report was 96.6.

by RTT Staff Writer

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