The U.S. dollar retraced some of its recent losses against the Euro and the British pound overnight, but the U.S. dollar index remains near its recent lows as President Barack Obama and lawmakers struggle to end an impasse over raising the U.S. debt limit and preventing a default. The Obama administration threatened a veto of House Speaker John Boehner’s two-step plan to raise the debt ceiling and cut $3 trillion in expenditures. Treasury Secretary Timothy F. Geithner has said the U.S. will run out of option to prevent a default on August 2nd. The uncertainty has led the dollar to record lows versus the Swiss franc and the worst level in four months against the Japanese yen. The Aussie dollar also surged to a record after a government report showed consumer prices rose more in the second quarter than economists had forecast, prompting traders to slash bets on a future interest-rate cut. New Zealand’s currency also climbed to the highest since it was freely floated in 1985 after a private survey showed business confidence improved in July. Meanwhile, the U.S. economic docket showed that orders for U.S. durable goods unexpectedly dropped in June and inventories climbed at the slowest pace in a year, evidence that companies lost confidence in the strength of the recovery as the second quarter ended. Bookings fell 2.1%, after gaining 1.9% the prior month.
The Euro fell against the yen and retreated from a three-week high versus the U.S. dollar as Germany’s Finance Minister Wolfgang Schaeuble said his country opposes a “blank check” for the euro-area rescue fund to purchase bonds in the secondary market. Schaeuble’s comments echoed remarks by German Chancellor Angela Merkel, who said a day after the July 21st summit of European leaders that she’s opposed to allowing the currency region’s 440 billion euro fund unconditional bond-buying in the secondary market. Italian and Spanish bonds slumped, increasing the yield relative to benchmark German bunds, weighing on the common currency. The Euro advanced last week after European leaders agreed to a new bailout for Greece and expanded the role of the region’s rescue fund.
The Japanese yen touched a four-month high against the U.S. dollar as the U.S. debt impasse continues to dominate headlines, causing the yen and the Swiss franc to assume the role as safe-haven currencies of choice. Bank of Japan board member Hidetoshi Kamezaki today said he’s watching the yen’s gains with great caution as they could damage the economy. The BOJ will take needed policy action proactively, he said. Group of Seven nations sold yen on March 18th after it reached a postwar record against the dollar the previous day. The Group said in a statement they wanted to reduce “excess volatility in disorderly movements.”
The British pound declined form the highest level in two months against the dollar as an index of U.K. factory orders fell and manufacturers’ optimism plunged to the lowest in two years, adding to signs the economic recovery is struggling. The orders gauge, based on a survey of manufacturers conducted by the Confederation of British Industry, declined to minus 10 in July from 1 in June. Economists surveyed by Bloomberg predicted the gauge would fall to minus 3. U.K. demand for houses fell last month as waning consumer confidence and difficulties in getting a mortgage kept potential home buyers off the market, the National Association of Estate Agents said today.
