Daily Summary Report

EUR/USD

(Bloomberg) — The euro rose against the dollar for the first time in three days after Germany’s Ifo business climate index unexpectedly approached a record high, sparking speculation that the European Central Bank may extend its interest rate hiking cycle. “Ifo gave the euro a boost,” said Joe Manimbo, market analyst at Travelex Global Business Payments in Washington. “There’s some minor profit-taking following the dollar’s recent rally, helping equities, commodities, and high-yielding currencies find support.”

GBP/USD

(Bloomberg) — The UK posted its largest April budget deficit since 1993 as tax revenues declined and spending rose, increasing pressure on Chancellor of the Exchequer George Osborne to stick to his fiscal consolidation plan. The UK Office for National Statistics reported in London that government net borrowing totaled £10 billion ($16 billion), up from £7.2 billion a year earlier. The median of 12 forecasts in a Bloomberg News survey predicted a £6.5 billion shortfall. Opposition Labour Party representatives and several economists warn Osborne may struggle to meet his deficit target as the economy attempts to regain momentum. Growth slowed over the six months to March, and Bank of England Governor Mervyn King stated this month that economic activity remains weak. “Growth has not accelerated as expected, raising concerns about overshooting the deficit target,” said Ross Walker, chief UK economist at Royal Bank of Scotland Group Plc in London. “Risks are skewed toward higher borrowing, though a dramatic overshoot appears unlikely.”

USD/JPY

(Bloomberg) — Japan’s net foreign investment position fell for the first time in two years in 2010, as the yen’s appreciation reduced the dollar value of overseas assets. The value of net foreign assets declined 5.5% to ¥251.5 trillion ($3.1 trillion) at end-2010, according to Japan’s Ministry of Finance in Tokyo. Japan remains the world’s largest foreign asset holder for the 20th consecutive year—unless China increases its holdings by more than 50% from ¥167.7 trillion, the ministry noted. Japan’s total overseas assets reached a second all-time high, underscoring the country’s strong external credit position—though its public debt burden remains the largest among advanced economies. The sharp yen rally prompted the Ministry of Finance to intervene in currency markets twice since September. “Japan’s net foreign assets have eased investor concerns about the country’s financial health,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. “Mostly it’s a legacy of past surpluses. Asset growth may slow due to population decline and stagnant domestic demand.”

USD/CAD

(Bloomberg) — The Canadian dollar traded near its lowest level since March amid concerns that global economic recovery is losing momentum. The loonie weakened against all 16 most-traded currencies after China’s industrial production data fell to a 10-month low. On May 20, CAD posted its longest weekly losing streak since November, pressured by falling oil prices and weak domestic economic indicators. “External factors are clearly causing concern,” said Darcy Brown, managing director of capital markets trading at Canadian Imperial Bank of Commerce, in a phone interview from Toronto. “China is slowing, and European issues remain central.”

CL1N

(Bloomberg) — Crude oil rose in New York after its biggest drop in over a week, supported by signs of declining inventories and a weaker U.S. dollar—which boosts oil’s appeal as an inflation hedge. Goldman Sachs Group Inc. and Morgan Stanley raised their oil price forecasts as Libya’s conflict continues to disrupt supply. Today’s U.S. Energy Information Administration report may show a drawdown in U.S. crude stocks last week. Oil also gained as the dollar fell against the euro following data showing Germany’s economy grew at its fastest pace in nearly a year. “The fundamentals supporting higher oil prices remain extremely constructive,” said Amrita Sen, Barclays Capital analyst in London, in an interview with Bloomberg Television’s Francine Lacqua. “Libyan oil is not returning to the market anytime soon.”

GOLD

(Bloomberg) — Gold futures climbed to a three-week high amid growing concerns over worsening sovereign debt stress in Europe—and as the dollar’s decline boosted demand for the precious metal as an alternative asset. The U.S. dollar fell for the first time in three sessions versus a basket of major currencies. Greece’s government approved an accelerated asset-sale and austerity plan worth €6 billion ($8.4 billion) to secure additional financial assistance. “Investors see diminishing capital flows into FX markets and want to buy gold,” said Adam Klopfenstein, senior market strategist at Lind-Waldock in Chicago. “People view gold as a store of value and a dollar alternative,” said Jeff Sherman, who helps manage $11 billion at DoubleLine Capital LP in New York. “We still expect gold prices to rise.”

Economic Calendar (GMT +4)

FAQ

What caused the euro’s recent rise against the US dollar?

The euro rose after Germany’s Ifo business climate index unexpectedly approached a record high, fueling speculation of further ECB rate hikes and prompting minor dollar profit-taking.

Why did the UK’s April budget deficit widen significantly?

The UK posted its largest April deficit since 1993 due to falling tax revenues and rising government spending, pushing net borrowing to £10 billion—well above the £6.5 billion forecast.

How did oil prices respond to recent market developments?

Crude oil rose on declining US inventories, a weaker US dollar, and ongoing supply disruptions from Libya—prompting Goldman Sachs and Morgan Stanley to raise their price forecasts.