Mounting US Consumer spending, good sign of trade mending

The U.S Dollar rose against the Euro and Yen yesterday on growth in U.S. manufacturing and doubts about Greece's ability to honor a pledge for further austerity measures in return for an aid package.

The Euro continued to fall against the U.S Dollar yesterday as longer term concern over the Euro-Zone sovereign debt contrasted with solid U.S economic data. The U.S data, which showed a strong reading in manufacturing and construction spending, illustrate a U.S economy that continues to drag itself out of the worst recession since the Great Depression. This compares with the Euro Zone where investors remain worried about the implementation of the unprecedented €110billion aid package for Greece. In the forex online market the EUR/USD closed at 1.31974 yesterday, after hitting a low of 1.31530.

The U.S. manufacturing sector grew in April at its fastest pace in almost six years and at a rate that was above expectations, according to an industry report released Monday. The Institute for Supply Management’s said its index of national factory activity rose to 60.4 in April from 59.6 a month earlier. The data represents a ninth straight month of gains, with the headline index at its highest since June 2004.

The U.S Dollar hit an 8-1/2 month high against the Yen as U.S. manufacturing data boosted optimism about the economic recovery. Following the release of the report, the USD/JPY struck a high of 94.774, up 0.82% from yesterday’s opening price. Strong U.S. data has increased expectations the Federal Reserve will raise interest rates later this year, while the Bank of Japan is seen keeping rates low indefinitely. The USD continued to appreciate against the Japanese currency this morning as signs the global economic recovery is gaining momentum damped demand for Yen as a refuge. The USD/JPY rose to a trading high of 94.970, up 0.30% from today’s opening price of 94.689.

Consumer spending in the U.S. rose in March by the most in six months, pointing to a recovery that may accelerate when the economy creates more jobs. Boosted by spending on autos and other durable goods, real U.S. consumer spending increased 0.6% to reach a record high level in March, at last surpassing the pre-recession peak set in November 2007, the Commerce Department reported yesterday. With spending growing much faster than incomes in March, the personal savings rate fell to 2.7%, the lowest since September 2008.

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Multi-billion aid pack deal finalized by Greece

The Euro fell from a one-week high against the U.S Dollar on concern that the €110 billion-euro ($146 billion) bailout package for Greece will fail to contain the region’s sovereign-debt crisis. The single European currency declined for the first time in four days against the U.S Dollar and Japanese Yen as EU leaders prepare to meet on May 7th to discuss the timeline of the parliamentary approval for loans to Greece, and as Germany plans to debate the plan on the same day. In the Asian forex online trading session this morning, the Euro dropped to $1.32047 from $1.32934 on Friday’s close, and down as much as 1.12% from yesterday’s high of $1.33595. The EUR/JPY struck a low of 123.977, down 1.17% from yesterday’s high of 125.450, and down 0.63% from Friday’s close.

Yesterday, Greek officials finalized a deal with the European Union and the IMF that will give Greece access to a muti-billion euro financial bailout. Greek officials agreed to budget cuts worth €30 billion ($40 billion), on top of measures already agreed and aimed at reducing the nation’s colossal budget deficit. The aid package, expected to total up to €110 over three years, represents the first rescue of a member of the 16-nation euro zone. On Sunday, the finance ministers of 16-euro nations agreed that the 15 other countries would lend €80 billion over three years. The IMF will, in parallel, offer a €30 billion package.

The Euro dropped for a fifth month versus the greenback in April, the longest stretch of losses since November 2008 as fear escalated that Europe’s deficit crisis would spread. Last week, the 16-nation Euro touched $1.311531, the lowest level since April 2009, when Standard & Poor’s cut Spain’s credit rating was cut from AA+ to AA, a sign that the debt crisis is spreading. It fell below $1.32 the previous day for the first time in a year after S&P sliced Greece’s credit rating to junk and lowered Portugal’s to the third-lowest investment grade.

In the United States, a report showing the economy grew at a slightly slower-than-expected pace in the first quarter had little impact on the greenback. Despite the below-forecast headline number, analysts said the GDP report shows signs of an improving economy. On Friday, the Advance GDP showed that the economy expanded by 3.2%, slightly slower than the predicted 3.4%, and significantly smaller than the 5.6% growth seen in the last quarter of 2009. On Friday, the USD/JPY hit a high of 94.569, before settling back down to close the week at 93.837, 0.17% below its opening price. The USD was up against the British Pound, closing the week at $1.52584, up 0.55% from the day’s opening price.

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