* The dollar and yen fell on Friday as stronger European purchasing managers’ indexes and a jump in US existing home sales boosted risk appetite. Federal Reserve Chairman Ben Bernanke said “economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good.” However, he did not give any indications of any tightening moves. The S&P 500 rose 18.76 points to 1,026.13. The yen was pressured by rising equity markets. The euro advanced as European stocks rose to a 10-month high and the eurozone manufacturing and services PMI climbed more than expected. Sterling fell modestly on the UK’s economic fundamentals despite better risk sentiment. The Australian and Canadian dollars gained on the stronger global economic outlook. Commodity prices rose and oil prices reached a 2009 high.
* The dollar index fell for a fourth day. Highly correlated with risk aversion and equity markets, the index failed to break the downtrend earlier in the week when global stock markets were under pressure. The dollar peaked when equities bottomed in March. US stocks are on the verge of breaking resistance while the dollar index is at important support. If the stock market continues its ascent next week, the dollar index is likely to test the 76- handle support.
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