The U.S. dollar slumped against all of its rivals overnight as President Barack Obama said last night that the U.S. may experience a “deep economic crisis” if leaders fail to reach a compromise on spending cuts and the nation defaults. The U.S. currency slid to its weakest level since March versus the Japanese yen and broke fresh all-time lows against the Swiss franc as lawmakers struggle to reach an accord to raise the nation’s $14.3 trillion debt ceiling by an August 2nd deadline. The President blamed the current stalemate on a group of Republicans in the House who are insisting on budget cuts and no tax increases. General market sentiment continues to believe that the President and Congress will come to an agreement by next week’s deadline, however investors are wary to purchase the greenback even as the threat of default remains relatively small. The dollar also fell against the Swedish krona as data showed a measure of inflation rose, bolstering the case for tighter monetary policy. The Canadian dollar also rose to its highest level in three years versus the U.S. dollar. Later this morning, the S&P Case/Shiller home price index, consumer confidence and new home sales are expected to hit the wire.
The Euro retreated against many of its counterparts, but continued its recent rally against the U.S. dollar as President Obama warned lawmakers on the looming debt impasse. European stocks retreated for a second day as a number of companies reported earnings that missed analyst’s estimates. Global equities remain under pressure amid concern that Europe’s fiscal crisis will derail the economic recovery and speculation by some that U.S. lawmakers will fail to agree on increasing the nation’s debt ceiling. There was no major economic data released in the Eurozone today, so expect the common currency to hold favorable ranges against the U.S. dollar but continue to soften against other safe-haven currencies such as the Japanese yen and the Swiss franc.
The Japanese yen pushed to its highest level since March overnight as investors sought safe-haven investments and were driven away from the U.S. dollar over a possible debt default. However, gains in the yen were limited on speculation Japanese officials will intervene to weaken the currency. Japanese Finance Minister Yoshihiko Noda said currency moves have been one-sided and he will continue to watch the yen closely. Bank of Japan Governor Masaaki Shirakawa said yesterday the yen’s strength could hurt the economy and the central bank is ready to take appropriate action as needed.
The British pound rose to a six week high against the dollar after a report showed U.K. economic growth matched economists’ forecasts and U.S. lawmakers failed to agree on a debt plan, boosting appeal of British assets. The data showed that gross domestic product rose 0.2% in the second quarter, slowing from the first quarter’s 0.5% pace. The print matched the median forecast of 32 economists in a Bloomberg News survey. As a result of the sluggish growth, economists are now not expecting the Bank of England to raise interest rates from a record low until the first quarter of next year, ultimately weighing on the British pound.
