The US dollar is likely to gain in the week ahead as a jump in the US unemployment rate to its highest since 1983 prompts investors to again seek the relative safety of the greenback. While other US data earlier in the week, including a survey on the US manufacturing sector and separately, home sales, eased concerns about the US economy.
The rise in the unemployment rate to 8.5 percent in March from 8.1 percent the prior month eroded any optimism about economic stability. "There is just too much that is still unknown, and while we have seen the markets moving away from risk aversion, I am not optimistic that this will last," said Dan Cook, senior market analyst at IG Markets in Chicago.
For the trading week, the dollar gained 2 percent against the yen, sending its two-week advance to 4.4 percent, while the euro rose 1.4 percent against the US currency. Euphoria following news that the Group of 20 leaders in London this week committed about $1 trillion in resources to fight the worst economic crisis since the 1930s is also expected to wane. That will further bolster demand for the dollar given its status as the world's reserve currency and the reputation of US taxpayers for paying government debt.
"I expect this 'green shoot, G20 exuberance' to diminish moderately next week in front of the Easter holiday," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange Analysis in London. The dollar should also retain allure despite the yield advantage in the euro. The ECB cut its refi rate by 25 basis points to 1.25 percent this week, compared with the benchmark US rate being close to zero.
Higher rates in the euro zone relative to those in the United States would typically heighten the attractiveness of euro-denominated assets and stoke demand for euros. But investors see the ECB being less proactive than the US, and with European Central Bank President Jean-Claude Trichet saying on Thursday that the central bank will only decide at its next meeting whether to take further non-standard steps in its monetary policy [ID:nL2983354], investors may again prefer the dollar.
Investors are not expecting next week's data to have more than a muted impact on trading. Wednesday sees the release of February wholesale inventories which are expected to fall 0.7 percent. Later that day the Federal Reserve will release the minutes of its last Open Market Committee meeting on March 17 and 18.
Weekly jobless claims data will be released on Thursday at the same time as US international trade data for February and US import and export prices for March. Economists polled by Reuters expect a $36.9 billion deficit in international trade.
Import prices are expected to rise 0.9 percent and export prices climb by 0.2 percent. "The coming week does not offer much guidance for traders," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey. "Wednesday's FOMC minutes and Thursday's US trade deficit will receive most of the market attention."
The US government will still release the March federal budget on Friday despite the closure of US markets for the Good Friday holiday. The budget report is expected to post a deficit of $147.5 billion.
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