The U.S. dollar slipped overnight, falling to a weekly low versus the Euro as Germany’s lower house of parliament voted 523 to 85 to broaden the powers of the European bailout fund, and the renewed efforts to address the sovereign debt crisis should help to prop up the Euro over the remainder of the week. The greenback was also under pressure as most global equity indexes rose and American stock futures foreshadow a higher open. However, Europe’s debt crisis continues to be a drag on the U.S. economy, President Barack Obama said yesterday. “In Europe, we haven’t seen them deal with their banking system and their financial system as effectively as they needed to,” he said. Meanwhile, the economic docket showed that the U.S. economy grew at a 1.3% pace in the second quarter, faster than estimated last month. The revised in gross domestic product compares with a 1.0% gain previously calculated, Commerce Department figures showed today. Also, claims for U.S. unemployment benefits fell more than forecast last week. Application for jobless benefits dropped by 37K, to 391K, the fewest since April, according to the U.S. Labor Department.
The Euro rose to its strongest level of the week against the U.S. dollar after Germany’s lower house of parliament approved the expansion of a bailout fund for debt-stricken euro-area nations to help contain the sovereign-debt crisis. The vote was widely expected to pass, but a negative outcome would have seriously damaged the common currency. The legislation is set to be debated and put to a non-binding vote in the upper house, or Bundesrat, tomorrow. The vote in Berlin on changes to the EFSF allows the fund to buy the bonds of distressed member states and offer emergency loans to governments, raising Germany’s guarantees to 211 billion euros from 123 billion euros. Gains in the euro were tempered after Italy’s borrowing costs rose at a government debt sale today.
The Japanese yen weakened against most of its counterparts, including the U.S. dollar, as rising global stocks weighed on the traditionally safe-haven currency. However, the Japanese yen has gained 11.6% in the past three months, the best performer among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes. The dollar has advanced 5.4% while the Euro has lost 1.2%. However, expect the JPY/USD exchange rate to maintain its tight range that it has held for the majority of September.
The British pound pushed modestly higher overnight as the economic docket encouraged a brighter outlook for the British economy. U.K. mortgage approvals rose in August to the highest in 20 months as borrowing costs at a record low helped provide support to the housing market. Lenders granted 52,410 loans to buy homes, the most since December 2009. In a separate report, Nationwide Building Society reported today that U.K. home prices were little changed in September and said “downside risks” to the housing market have increased due to the economic slowdown.
