The U.S. dollar held relatively tight ranges overnight but still continued to slide against its major peers as investors increased speculation that the Federal Reserve Chairman Ben S. Bernanke will announce further monetary stimulus for the economy tomorrow. Bernanke told Congress in July that the Fed’s options to bolster the economy include extending the average maturity of its bond holdings and cutting the interest rate on excess reserves, as well as buying more debt and keeping rates at a record low. However, if the Fed disappoints markets and fails to show a willingness to embark on a third round of so-called quantitative easing, or QE3, higher-yielding assets such as stocks will likely falter and push the U.S. dollar higher. Meanwhile, claims for U.S. unemployment benefits unexpectedly rose last week, likely pushed up for a second time by a labor dispute at Verizon Communications Inc. Jobless claims climbed by 5K to 417K, Labor Department figures showed today. At least 8,500K applications were filed by workers at Verizon last week. The data has failed to affect the direction of the U.S. dollar this morning and with no more data slated for release today expect tight ranges ahead of the Fed conference tomorrow in Jackson Hole, WY.
The Euro continues to trade near recent highs against the greenback as increased speculation for additional monetary stimulus in the U.S. bolstered global equity indexes. Indeed, the Stoxx Europe 600 Index rose as much as 1.1%, following a 0.6% rise in Asia’s benchmark MSCI Asia Pacific Index. However, the Euro may come under modest pressure early next week as the Germany-based market research company GfK SE is forecasting its consumer sentiment index will decline for a sixth month in September amid household concerns that the economy is slowing. That data will follow data this week that showed business confidence in Europe’s biggest economy was at the lowest in more than a year and investor sentiment slid the most in five years.
The Japanese yen continued to push lower a day after Japanese Finance Minister Yoshihiko Noda announced yesterday a $100 billion funding program intended to encourage the exchange of “yen-denominated funds to foreign currencies.” The plan isn’t likely to have a strong impact on the yen as it doesn’t outline coordinated action with the Bank of Japan in monetary easing or further intervention, according to a Barclays Bank Plc research note.
The British pound was mostly unchanged against the U.S. dollar but fell to its lowest level in more than two weeks against the Euro as a report showed U.K. consumer confidence dropped in July, fueling concern the economic recovery is faltering. Nationwide Building Society said its index of sentiment declined 2 points to 19 from June, the lowest reading since April. A gauge of consumers’ expectations for the economy in the next six months slipped 3 points to 67. At the same time, Policy maker Martin Weale said he abandoned his call for an interest rate increase this month because the outlook weakened amid the risk of contagion from events in Europe and the U.S.
