Market Review – 26/07/2011 22:03 GMT
Dollar weakens broadly on debt limit deadlock
The greenback fell against all major currencies on Tuesday as U.S. lawmakers still could not reach a compromise on raising the U.S. debt limit and reducing the deficit. Usd/chf dropped below 0.8000 level to a fresh lifetime low of 0.7997.
U.S. President Barack Obama issued a warning that the U.S. may experience a ‘deep economic crisis’ if leaders failed to reach a compromise that would enable the U.S. to raise its debt ceiling and create a plan to reduce the government’s borrowing, sparking selling of dollar and spurred demand for safe-haven currencies.
The single currency rallied from Asian low of 1.4358 to 1.4522 due to dollar’s broad-based weakness on wrangling U.S. debt ceiling as U.S. President Barack Obama warned U.S. growing debt threatened to do ‘serious’ damage to its economy. Later, although euro pared some of its gain and retreated to 1.4456 after the release of U.S. house prices data (dropped by 4.51% y/y in May, the most in 18 months), the pair rebounded on cross buying of euro after the release of data on U.S. consumer confidence and new housing (59.5 in Jul and -1.0% in Jun vs forecast of 56.0 and -2.0% respectively) and climbed to 1.4526 in NY afternoon.
Earlier in Europe, euro was supported as ECB’s Governing Council member Christian Noyer said ‘ECB is in state of strong vigilance (after this month’s interest rate increase) and ECB never pre-commits on monetary policy; we want to show that inflationary pressure from oil price won’t lead to permanent price rises via second-round effect.’
Versus the Japanese yen, although the greenback fell to 77.89 in Asian morning, the pair later spiked to 78.75 in just less than one minute but the pair immediately gave up its gains and ratcheted lower to 77.97 in European morning. The usd/jpy pair then dropped again from 78.09 to a fresh 4-month low of 77.83 in NY afternoon before stabilising.
Despite cable’s initial brief dip to 1.6266 near Asian open, the British pound surged due to dollar’s weakness after U.S. President Obama’s address and price rose to 1.6414 after the release of U.K. GDP data as UK preliminary Q2 GDP came in at +0.2% Q/Q and +0.7% Y/Y, the lowest Y/Y growth since Q1 2010. Later, although sterling retreated from 1.6422 to 1.6371 in NY morning on profit-taking, renewed buying lifted the pair again to 1.6429 in late NY session.
Data to be released on Wednesday include:
New Zealand Business Confidence, Australia CPI, China Leading Index, Industrial Profit, Germany Import price index, CPI prelim., HICP prelim., U.K. Nationwide house prices, U.K. CBI Orders, Swiss KOF indicator, U.S. Durable goods, ex. Defense, ex. Transport, Midwest manufacturing and Fed’s Beige Book.