Look for the Dollar to Recover Today

The US dollar is softer across the board and is indeed at new lows for the week against most of the major currencies ahead of amid relatively constructive string economic data and rate hikes from New Zealand and Brazil, a healthy reception to the first Spanish bond auction since the credit downgrade at the end of May. The Bank of England left rates steady and the focus is on the ECB meeting and the subsequent press conference. Barring a surprise from Trichet, look for the US dollar to see its losses pared in the North American session today.

Global equities are marching higher today. The MSCI Asia-Pacific Index rose 1%. A small upward revision to Japan’s Q1 GDP from 4.9% to 5.0%, helped by upward revisions to consumer spending, helped the Nikkei gain 1%. Despite a news of a sharper than expected of China’s trade surplus, news that property prices rose 12.4%, the second highest on record and talk that tomorrow’s CPI may be above 3% weighed on the Chinese equities, where the Shanghai Composite slipped 0.8%.

European equities have staged an impressive recovery after opening with losses off 1% of more. Oil and gas is the only sector in the Dow Jones 600 that is lower on the day. Industrials and basic materials are leading the way. A local German paper reports that a US subsidiary of a large German bank may be having financing difficulties and although the DAX is up around 0.6% near midday, financials are under-performing.

The rally in the equity market and successful auction in the periphery of Europe today are taking away the safe haven bid from German bunds and Us Treasuries. While Italy and Ireland sold bills, that were easily absorbed, the focus was on the roughly 4 lbln euro bono sale by Spain, The bid-to-cover was 2.1 vs 1.79 in April, but at a cost of sharply higher yields. In April the yield was a little more than 2% and today a little more than 3.30%.