Currencies

The dollar rose last week but traded within a tight range. Market players even had to acknowledge that the economic data from the United States was looking good especially when compared to Europe and Japan. Some analysts said the dollar might lose its gains because government and industry statistics point to a recovery that might be weaker than anticipated (by whom?). The dollar gained early in the week thanks to a string of positive economic statistics. It strengthened at week’s end thanks to the stock market rally.

Earlier in the week there was an occasional push to see if the euro could reach parity with the dollar. That's when one euro is equal to one U.S. dollar. Analysts believe that the dollar's parity with the euro is just a matter of time. The risks for the dollar continue with equity market volatility and the U.S. yield disadvantage. Interest rates in the United States are lower than those in Europe, making those investments potentially more profitable.

After seven separate interventions in the currency market by Japanese officials over the past few weeks, the yen stayed within a narrow range last week. Although the Tankan survey showed an improvement in business sentiment and other indicators show an improvement in the economy, first-quarter growth relied almost entirely on export growth rather than increased domestic demand. This makes the economy more vulnerable to currency swings, which have a direct impact on exporters’ earnings.