The US Dollar fell back versus the euro and British pound as US data indicated easing inflation pressures, but rose against the commodity dollars. Indeed, the Australian and New Zealand dollar took the biggest plunge against the greenback, and was followed by the low yielding Swiss franc and Yen as rising stock prices spurred increased demands for carry trades. Against the European currencies, the US dollar slipped as the British Pound ended the day above 1.9450, while the Euro rose toward 1.5500.
A speech by Atlanta Fed President Dennis Lockhart supported the downgraded view taken on by Fed Chairman Bernanke as he stated the instability in the credit markets to remain the biggest concern for regulators, and went on to say that some of the efforts taken on by government officials have done more harm than good. Lockhart noted that future regulatory changes will take place as a result of the credit crunch, but questioned how far regulators will go to restore confidence in the financial markets. On the economic front, Consumer Price inflation inched lower as the index fell to 3.9 percent from 4.0 percent for the year, with the core measure of inflation following as it dipped to 2.3 percent from 2.4 percent. The MBA Mortgage Application index also added to the mix of economic data as it rose 2.9 percent for the week ending May 9th, and reflects that the worst of the credit crunch could be over.
The stock markets snapped back from yesterday’s losses as fresh CPI data brightened the outlook for the US, with Freddie Mac adding to the mix as first quarter profits fell less than expected. As a result, the DJIA picked up 66.20 points to hold at 12,898.38 points, with 25 of the 30 components advancing. Among the broader indices, the S&P500 rose 5.62 points to 1,408.66 points, with 247 stocks rising a new 52 week high.
Rising stock prices swayed demands for US Treasuries, with many investors leaving the safe haven of risk free bonds as they moved into higher yielding assets. As a result, the benchmark 10-Year yield rose to 3.921 percent from 3.915 percent, while the 2-Year yield jumped to 2.528 percent from 2.474 percent.
Looking ahead, the Euro-Zone GDP and CPI release are scheduled for 9:00 GMT, and expected major event risk for the Euro after the release as ECB President Trichet is scheduled to speak at 11:40 GMT. Looking at the US, the Empire Manufacturing will kick off the US session at 12:30 GMT, with the NAHB Housing Index bring an end to the slew of economic data at 17:00 GMT.