Daily market report Dollar Holds Losses on U.S. Debt Deal Optimism - British Pound Rate Hawks Look to Inflation Data to Fortify BoE Fight - Euro Steady, Bonds Gain as Euro-group Discusses Future for Rescues The dollar slid against higher-yielding currencies as equity markets signaled optimism about U.S. Senate discussions on raising the nation’s debt limit to avert a default, curbing demand for refuge assets. The greenback was lower after two days of declines versus the euro as Senate Majority Leader Harry Reid said he hoped a deal could be announced today. Volatility in currencies is at a more than eight-month low as traders await a resolution to the impasse that shuttered parts of the U.S. government. The dollar fell 0.1 percent to $1.3568 per euro as of 6:50 a.m. in Tokyo after falling 0.3 percent over the past two days to $1.3561 yesterday. The Aussie climbed as much as 0.5 percent to 95.39 U.S. cents, the strongest since June 19. Versus the yen, the greenback slid 0.2 percent to 98.43. The euro weakened 0.1 percent to 133.55 yen and earlier touched 133.83, the most since since Sept. 26. The dollar will probably weaken against riskier currencies once the threat of a default is removed as the government shutdown since Oct. 1 impacts the economy and sidelines the Federal Reserve, according to Morgan Stanley. The Fed maintained its $85 billion in monthly bond purchases in September and said policy makers wanted further evidence of economic improvement before reducing stimulus measures Some of the sterling’s impressive gains over the past three months have been bled off; however, this mild retracement far from re-balances the currency’s bearings. At the center of this fundamental pricing consideration are the market’s expectations for higher rates. According to the Bank of England’s forward guidance, the central bank plans on holding the benchmark rate at its extremely low level until 2016. Yet, the swaps curve is still pricing in the first hike well before that time frame. This is a discrepancy that presents serious contention for the pound. If there is too much optimism, the currency has considerable room to retrace. The upcoming round of inflation data will help to shape expectations. There would likely be a greater reaction to a tame price reading as speculators are more compliant to data shifts. Eurozone Finance Ministers met to discuss the economy, banking union and rescue programs Monday. In the upcoming session, officials from the broader European Union will convene on the same. The comments to come out the first round offered an interesting assessment of the region’s health. According to Eurogroup President Joroen Dijsselbloem, Ireland and Spain are on pace to exit from their respective support programs. That is ambitious considering the financial liabilities both countries’ economies and banking sectors float. A less overtly optimistic tone surrounded Greece’s evaluation. Dijsselbloem remarked that there was no support for a further haircut for the long-troubled country and further suggested the country’s future support system will be revisited at the December meeting. Have a good day!
Posted on: Tue, 15 Oct 2013 07:56:15 +0000