Dollar Strengthens Against European Majors, Pares Gains Against Yen

The US dollar rallied against the major currencies of Europe on Friday in Asia as a couple of negative news from Europe prompted traders to seek safer assets. However, it erased some of its early morning gains against the yen.



Standard and Poor's downgraded Spanish credit ratings by two notches on Thursday saying that it expects further deterioration of the country's public finances amid economic contraction and the need to support banks.

S&P said it is lowering the euro member's long-term and short-term sovereign credit ratings to 'BBB+/A-2' from 'A/A-1'. The outlook on the ratings is 'negative'.
Germany's import price inflation slowed for the sixth consecutive month March and came in below economists' forecast, data released by the Federal Statistical Office showed today.

The import price index increased 3.1 percent on an annual basis in March, notably slower than the 3.5 percent growth seen in February. Economists were looking for a 3.3 percent rise. The rate of growth slowed for the sixth consecutive month.

On a monthly basis, import prices moved up at a slower rate of 0.7 percent in March than the previous month's 1 percent.
The dollar touched a 3-day high of 1.3162 against the euro, almost 100-pips gain from yesterday's fresh 3-week low of 1.3263. The near-term resistance for the buck is likely to be seen around the 1.3140 level.

 
The dollar advanced to a 2-day high of 1.6156 against the pound by 2:20 am ET, up from yesterday's fresh multi-month low of 1.6206. If the greenback strengthens further, it may re-test the 1.61 level.
Polling firm GfK reported today that its Consumer Confidence Index posted a reading of minus-31 in April, unchanged from March. The April reading matched the forecasts of most economists.

Against the Swiss franc, the dollar climbed to a 3-day high of 0.9132 and this was up almost 0.8 percent from yesterday's fresh 3-week low of 0.9090. The dollar-franc pair is presently worth 0.9125 with 0.9140 seen as the next likely resistance level.

On the flip side, the dollar pared its early Asian session gains against the yen in late trading, hitting an intra-day low of 80.66 around 2:30 am ET. This was down from a 2-day high of 81.46 hit at noon but the pair managed to stay away from its 10-day low of 80.50 that hit immediately after the Bank of Japan monetary action.

The Bank of Japan increased the total size of its asset purchase program by JPY 5 trillion to JPY 70 trillion with some changes in its composition. The size of the total program for end-2012 will remain at JPY 65 trillion. But the bank has decided to expand the program by JPY 5 trillion by end-2013.

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