The U.S. dollar traded in a mixed direction overnight, gaining modestly versus the Euro even after the Greek Prime Minister won a confidence vote last night. The greenback gained the most versus the British pound as policy makers held an increasingly dovish tone towards future policy. However, the U.S. dollar fell against the Norwegian Krone as the Norges Bank kept its benchmark interest rate on hold at 2.25% and said gradual increases are projected for the second part of the year. Meanwhile, the economic docket showed mortgage applications in the U.S. dropped last week from the highest level this year, led by the biggest decline in refinancing in April. Later this morning, the house price index for April is expected to register –0.3% in April, flat from a –0.3% in March. Investors will then shift their attention to the conclusion of the Federal Reserve’s two-day policy meeting and Chairman Ben Bernanke’s press conference later in the afternoon. Policy makers are widely expected to keep the benchmark at zero to 0.25%, where it has been since December 2008. The Fed is scheduled to end its $600 billion second round of bond-buying, known as quantitative easing, this month.
The Euro declined against most of its major counterparts amid speculation Greek Prime Minister George Papandreou will struggle to pass additional austerity measures, even after winning a confidence vote last night. Lawmakers in Athens supported the Prime Minister in a 155-143 vote after he shuffled his Cabinet. Papandreou will now seek approval next week for a 78-billion euro package of budget cuts and asset sales to stave off the threat of default. European leaders will discuss Greece’s needs at a two-day summit in Brussels starting tomorrow and finance chiefs will decide on July 3rd whether Greece has met conditions for the next aid payment. The International Monetary Fund, a contributor of a third of the bailout money for Greece and two other euro-area countries that have received bailouts, Ireland and Portugal, has warned European Union leaders that failure to take decisive action on the debt crisis risks triggering “large global spillovers.”
The Japanese yen rose against nearly all of its rivals overnight, despite a rise in Asian equities, as worries surrounding the European debt crisis led investors to the relative safety of the Japanese currency. Nevertheless, the yen is largely unchanged versus its American counterpart over the last few weeks as the pair continues to struggle to find a definitive direction. Indeed, the languid performance of the currency pair led one analyst at Citigroup to quip that "dollar/yen continues to resemble Duran Duran in the fact that it is stuck in the '80s."
The British pound fell against the U.S. dollar and the Euro as minutes of the latest Bank of England meeting showed some policy makers saw a risk that more bond purchases may be required. The majority of the MPC said the “current weakness of demand growth was likely to persist for longer than previously thought, according to minutes of the June 8-9th meeting published today. Europe’s debt crisis highlighted the potential for further shocks, and for some members, it “was possible that further asset purchases might become warranted,” the notes showed. Bank of England Chief Economist Spencer Dale and Martin Weale continued to push for a quarter-point increase in the benchmark rate, while Governor Meryvn King and the other six members of the committee voted for no change.
