The U.S. dollar fell to its weakest level in almost a week against the Euro as stocks rose amid speculation policy makers are moving closer to resolving a deadlock on U.S. borrowing and to finding an agreement on Europe’s debt crisis. The MSCI Asia Pacific Index and the Stoxx Europe 600 rose over 1.0% and American equity futures advanced after Apple Inc. said its third-quarter profit more than doubled. The Dollar lost the most against the Swedish krona as the rally in shares stoked demand for higher-yielding assets. Late yesterday, President Barack Obama endorsed a plan from the Gang of Six, a bipartisan group of U.S. senators, that may help speed up negotiation on the deficit and raising the federal debt ceiling. The plan is expected to cut the deficit by 3.7 billion dollars over the next ten years. Meanwhile, the economic docket showed that mortgage applications in the U.S. rose for the first time in a month. The Mortgage Bankers Association’s index increased 15.5% the period ended July 15 from the prior week, the group reported today. Later, purchases of previously owned homes, which make up about 95% of the U.S. market, are expected to register a gain of 1.9% in June from May’s six-month low.
The Euro gained as equities rallied and Italian and Spanish bonds rose before French President Nicolas Sarkzy and German Chancellor Angela Merkel meet to seek common ground on tackling the region’s debt woes. Sarkozy will dine with Merkel in Berlin today before the debt summit in Brussels tomorrow. The gathering could be a “make-or-break moment” for the euro region, Greek Prime Minister George Papandreou said in an interview. At the meeting, officials are considering steps previously rejected by Germany, including the use of precautionary credit lines, to prevent the crisis from spreading. Other options up for discussion will likely include enabling the main 440 billion-euro rescue fund to lend to recapitalize banks.
The Japanese yen traded on its back heel versus most of its rivals overnight as stocks rallied, but remains near its recent highs against the U.S. dollar. At the same time, the Bank of Japan raised its economic assessment for a second moth in July after companies ramped up production at the fastest pace in more than 50 years. Japan’s economy contracted at an annualized 3.5% pace in the three months through March, the second straight quarter of shrinkage, as the quake disrupted production and pushed down consumer expenditures.
The British pound remained mostly unchanged versus the U.S. dollar but firmed against the Euro as minutes from the Bank of England suggested fewer policy makers are considering calling for bond purchases. Bank of England officials voted 7-2 to keep the benchmark interest rate on hold this month as a majority of policy makers said recent developments meant there was less need for near-term tightening. There was a “range of views” among the majority of the MPC on the outlook for inflation, the minutes said. In contrast to the June meeting, there was no mention of other policy makers favoring more bond purchase this month. In June, some officials said it was “possible” further asset purchase might become warranted.
