The Euro Strikes Back – US-FOREX.US
The euro-zone has hit back at the dollar’s recent gains with the out-of-left-field announcement that its economy barely contracted between April and June.On Thursday the 16-member euro zone reported its gross domestic product fell by only 0.1% during the second quarter, a significant improvement from the 2.5% drop it recorded in the first. The news was a shot in the arm to euro-boosters, who were set back after Friday’s U.S. labor report indicated economic improvement in America is free of inflation pressure, despite massive liquidity injections by the Federal Reserve and Treasury. Yet, more than the broader euro zone’s surprisingly strong quarter, the euro reached a one-week high against the greenback, 1.43, because its largest economies, France and Germany, managed to actually grow in the second quarter. The British pound meanwhile exchanged hands at 1.68, in midday trading. PowerShares DB US Dollar Index Bullish
fell 0.6%, or 14 cents, to 23.33, while PowerShares DB US Dollar Index Bearish
rose 0.6%, or 15 cents, to 27.37.The pro-euro argument has been that its central bank’s relative temperance in stimulating its recovery will benefit in the long-term by preventing inflation. The argument stands against Britain and the United States, who have injected massive amounts of stimulus cash into their economies in the hopes it will man-handle their nations’ dark economic forces into submission. The English-speaking measures have raised inflationary concerns throughout the financial world. The U.S. Federal Reserve has rejected these arguments by contending that the economic recovery in the U.S. will be too slow to spark inflation, and that the excess capacity in the States will be able to absorb the growth. In addition to Europe’s good news, the dollar was hampered by disappointing jobs and retail data, both of which indicated continued consumer prudence. “Retail sales were miserable once again in July,” said Mike Feroli, a senior economist at JPMorgan Chase. Total sales only fell 0.1%, but the figure was spurred by the government’s “cash for clunkers” program. When auto sales are excluded, sales decline 0.6%. The data comes one day after the Federal Open Market Committee said economic activity is leveling out, though it promised to keep policy at historic lows, while employing all necessary means to support the recovery process.
The weak economic news lowered the Japanese Yen to 95.27, and dragged the yield on the benchmark 10-year U.S. Treasury note to 3.67%, from 3.71%. Meanwhile, the iShares Barclays 10-20 Year Treasury Bond
exchange-traded fund, which follows long-dated Treasuries, rose 0.4%, or 43 cents, to 107.62, and the iShares Barclays 1-3 Year Treasury Bond
ETF gained 0.1%, or 5 cents, to 83.52.