Euro loses ground to the US dollar

The euro weakened against the US dollar yesterday as investors flocked to the safe haven of the dollar, predominantly due to fears arising over the global outbreak of swine flu. World health officials said yesterday that the virus was suspected in up to149 deaths in Mexico, with more than 1,600 cases reported, while 50 cases — none fatal — were confirmed in the United States, six in Canada and several in Europe, including 2 in the UK.

Shares in travel companies were worst hit by the outbreak of swine flu, with Thomas Cook, TUI, British Airways, Intercontinental and Carnival all trading sharply lower on fears that travel plans will be affected by concerns of the epidemic becoming a pandemic. But London fought back from early swine flu-related losses to track Wall Street higher on hopes a new restructuring plan from GM will help it avoid bankruptcy. However, worries have arisen that automaker Chrysler could be filing for bankruptcy if it does not agree a deal with Fiat by April 30.

Data released in the eurozone yesterday saw the German May GfK consumer sentiment index remain steady at 2.5, but riskier currencies came under pressure because of media reports about the extent of the toxic asset problem in German banks, and growing attention on public debt in countries such as the UK.

Investors are now eagerly awaiting the final outcome of the US Federal Reserve’s meeting taking place today and tomorrow, as well as quarterly earnings released by major banks. Investors also await the outcome of stress tests for US banks, scheduled to be announced next week. The tests involve a capital buffer to assist banks in overcoming a 3.3% economic contraction in 2009. Additionally, the ECB will be announcing their interest rate decision on May 7 where they are expected to cut interest rates by 25 basis points and possibly announce quantitative easing measures to combat the recession.

There are several announcements taking place in the US today, including S&P/Case-Shiller Home Price Indices, Consumer Confidence, Richmond Fed Manufacturing Index and ABC/Washington Post Consumer Confidence. There are no significant announcements taking place in the euro zone today.