Latest grim data out of Euro zone areas will boost US Dollar Index further

The latest grim financial data in several Euro zone areas including Germany, Italy and France will give a boost to the US Dollar Index as investors sell the euro on concerns over the long term viability of the block’s shared currency.

Latest Dollar Index Rate

The ICE US Dollar Index, which tracks the US dollar against six major world currencies was trading at 82.810 – 09.37 GMT today, from the session open of 82.285.

French, Italian and German Data

Mixed signals from France, where the budget deficit narrowed but the trade deficit for April came in wider than expected.

The national overspend fell to €59.9bn for January to April, from €61.4bn for the same period last year. Government spending rose 4.2% to €133.6bn, outpacing higher tax receipts, which rose just 2.7 percent to €91bn. However, the trade deficit stands at €5.8bn, higher than the €5.5bn economists had predicted.

Italian industrial production fell more dramatically than expected in April, with the eurozone’s third largest still deep in recession. April output fell 1.9 percent from teh previous month, far outstripping the 0.5 percent decline predicted by a survey of 18 analysts.

Meanwhile Germany, Europe’s largest economy is beginning to feel the pinch, with seasonally adjusted imports dropping 4.8 percent, their worst decline in two years according to data at Reuters. The numbers will have surprised German economists, who mostly expected the number to remain flat, having falled 0.9 percent in March.

Even worse for the Euro zone, a Spanish credit rating downgrade yesterday evening added to investor reluctance to take on risk and ratcheted up concern the European debt crisis was intensifying.

EU and German sources said that Spain was expected to make a request over the weekend for an aid package to prop up its troubled banks, highlighting the vulnerability of Spain’s financial sector.

“With the negative news on Spain’s rating cut it’s back to reality for the market. The recovery we saw in the last few days was not a sustainable one,” said Lutz Karpowitz, currency strategist at Commerzbank, who forecast the euro would be around $1.20 by the end of June.

Buying The US Dollar

As sluggish global growth prompts central banks to spring into action once again, the US dollar is emerging as the best of a bad bunch of currencies and the surge this morning in the US Dollar Index confirms this again.

Even recent speculation that the US Fed may flood the market with more American dollars to combat continued weakness in the US economy has done little to scare investors away from the world’s favourite safe haven currency.

The reason is that the US economy is in better shape than the rest of the world, helping drive demand for US dollars. Also, a new round of bond buying probably would coincide with a worsening global outlook and a possible deepening of the crisis in Europe, a situation that could also prop up US dollar demand.

The US dollar is up for the year versus the euro, British pound and the Japanese yen. Since early May, as the European crisis heated up again, the US dollar has gained nearly six percent against the euro currency alone.

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Latest grim data out of Euro zone areas will boost US Dollar Index further