Dollar Down As IMF Cuts U.S. Growth Prospects, While Iraq Continues to Weigh
New York (June 16) The dollar fell against most of the major currencies on Monday after the International Monetary Fund cut its forecast for U.S. economic growth this year. While concerns about the conflict in Iraq, continue to weigh on the market.
The International Monetary Fund cut its forecast for U.S. economic growth this year, blaming the unusually harsh winter, along with the “still-struggling housing market” which it says will act as a drag on growth. The IMF now expects the U.S. economy to expand 2% in 2014, down from its forecast of 2.8% in April. In other news, today’s data was more upbeat, with manufacturing activity in the Empire state expanding more quickly than forecast in June, while a separate report showed that industrial production rose more-than-expected in May. But it was the ongoing Sunni insurgency in Iraq which continued to weigh on the market, amid fears over the impact of reduced oil supply on global growth and the possible threat of a military reaction from the United States.
USD/JPY closed the session down -0.15% at 101.84. Elsewhere, the pound continues to find support after BoE Governor Mark Carney said last Thursday that U.K. interest rates could rise sooner than expected as the economic recovery continues to gain momentum. GBP/USD closed the session up 0.06% at 1.6979, down from a high of 1.7012, the highest level since August 6, 2009. And the euro was boosted following today’s downbeat IMF forecast for U.S. growth.
The move comes despite this mornings data which confirmed that the annual rate of inflation in the euro zone remained unchanged at a four-and-a-half year low of 0.5% in May. The European Central Bank targets an annual inflation rate of close to but just under 2%. The single currency has weakened broadly since the ECB cut rates to record lows and imposed negative rates on commercial lenders for the first time earlier this month, in order to combat the threat of persistently low inflation in the euro area. EUR/USD closed the session up 0.20% at 1.3567, pulling back from the four month low of 1.3502 struck earlier this month.
In New Zealand, the Kiwi ended the session in positive territory amid volatile trading as investors remain cautious about the escalating violence in Iraq. NZD/USD closed the session up 0.10% at 0.8674. And the Australian dollar closed the session slightly lower, weighed down by profit taking and lower iron ore prices. AUD/USD closed the session down 0.03% at -0.9399. Finally, the Canadian dollar was muted despite Crude oil prices rising again on Monday. Camilla Sutton of Bank of Nova Scotia said today. There are two things at play here: First, the turmoil in Iraq should be pushing up the U.S. dollar,. And while it is, the move is far from dramatic. And it’s true that high oil prices bode well for the Canadian dollar, she added, but that’s when stronger crude is driven by demand, rather than by supply. USD/CAD closed the session down -0.06% at 1.0851.
SOURCE: Forexnews
