The dollar was headed
for a second straight monthly advance against the euro and yen as signs of improving economic
growth boosted investor confidence in U.S. assets.
The U.S. currency also traded close to
a three-month high versus the yen as traders bet the Federal Reserve will raise
interest rates later this year.
The dollar has risen
0.4% versus the euro this month. The dollar has gained 1.5% this month against
the yen.
The dollar got a brief boost after a government
report showed personal income was stronger in April than economists expected.
Incomes grew 0.2%, bolstered in part by the government's tax rebates, after a
0.4% increase the prior month. The median forecast was for a drop to 0.1%.
The dollar pared its
monthly gain against the euro today as private report showed a measure of U.S. business activity shrank in
May.
The U.S. economy expanded at a 0.9%
annual pace last quarter, faster than the Commerce Department's April 30
estimate of 0.6%, the government said yesterday. U.S. durable goods orders excluding
transportation equipment rose 2.5% in April. The median forecast was for a 0.5%
drop.
“The data has been dollar-positive because
they'll allow the Fed to keep rates where they are,” said Greg Anderson, a
foreign exchange strategist at ABN Amro Bank NV.'
The National Association of Purchasing
Management-Chicago said today its business index rose to 49.1 this month,
higher than forecast, from 48.3
in April. Figures below 50 signal contraction.
The euro fell earlier after retail sales in Germany, Europe's
largest economy, unexpectedly dropped in April. Sales adjusted for inflation
and seasonal swings fell 1.7% from March, when they dropped 2.2%. Economists
forecast a gain of 0.6%.
“Consumption in Germany
is cooling down due to hefty oil prices,” said Ryohei Muramatsu, manager of
Group Treasury Asia at Commerzbank AG, Germany's second-largest bank. “In
such a situation, the Fed could raise rates faster than the European Central
Bank”. The euro may fall to $1.52 by June 30, he said.
Britain's pound will fall to 81 pence
against the euro in coming months as a weakening economy prompts investors to
resume bets the Bank of England will add to interest rate cuts this year,
according to a Dresdner Kleinwort note yesterday. U.K. consumer confidence dropped in
May to the lowest level since 1990, as people became more pessimistic that the
economy will slip into a recession.
Futures on the Chicago Board of Trade show a 29%
chance the Fed will raise its target rate by a quarter- percentage point to
2.25% on Sept. 16.