The U.S. dollar traded in a relatively tight range overnight, holding on to the majority of its gains from last week despite global equities trading higher. The greenback remains near its highest ranges of the year against the Euro, British pound, Canadian dollar and the Mexican peso as slower global growth and ongoing struggles of the European debt crisis has dampened demand for higher-yielding currencies. Meanwhile, the U.S. economic docket is expected to show that purchases of new houses in the U.S. probably declined in August to the lowest level in six months as buyers sought cheaper distressed properties, economists said. Sales are expected to fall 1.3%, a fourth consecutive drop, according to the median estimate in a Bloomberg New survey of economists. Tomorrow sees the release of the S&P Case-Shiller Home price index and consumer confidence, followed by durable goods orders on Wednesday. Gross domestic product, weekly jobless claims and pending home sales will hit the wire Thursday morning, while personal income and outlays will round out the weekly docket on Friday.
The Euro remains near its weakest level of the year versus the U.S. dollar on uncertainty over whether Greece will get another round of funding to avoid default. Finance ministers and central bankers who held weekend talks in Washington, where the IMF and the World bank had their annual meetings, urged European officials to intensify efforts to contain their 18-month debt crisis as Greece teetered on the edge of default. U.S. Treasury Timothy Geithner called on governments to unite with the European Central bank to boost the capacity of their bailout fund, saying failure to act threatened “cascading default, bank runs and catastrophic risk.” The Euro found modest support after a German report showed business confidence fell less than economists forecast. The Ifo Institute said its business climax index for Germany dropped to 107.5 to 108.7 in August, beating expectations of a 106.5 decline.
The Japanese yen held its tight range from the last month versus the U.S. dollar as the safe-haven currencies rise and fall with global equities. However, the yen is currently trading at a decade high versus the Euro on speculation European policy makers are struggling to resolve the debt crisis. Expect the JPY/USD to trade in largely flat ranges for the remainder of the week.
The British pound rebounded from its 8-month lows versus the U.S. dollar but could remain under pressure over the medium term as the Bank of England maintains its dovish stance towards future policy. Bank of England policymaker Ben Broadbent, who joined the Monetary Policy Committee in June, said inflation expectations remain under control. “I see little evidence that, so far at least, high spot inflation has materially dented confidence” in the central bank’s 2% inflation target, Broadbent said today during a speech in London. “Most importantly for policy today, the international environment is clearly disinflationary.”
