The U.S. dollar retraced much of yesterday’s losses even as European and Asian equities rose overnight. The dollar fell during yesterday’s session after the European Central Bank said it will coordinate with the Federal Reserve and other central banks to conduct three separate dollar liquidity operations to ensure lenders have enough of the currency through the end of the year. The U.S. dollar index found support after Nobel-prize winning economist Joseph Stiglitz warned of a recession in Europe and the U.S., spurring demand for safer assets. There is “a serious risk at least” of a double-dip recession, Stiglitz said. The U.S. jobs deficit will almost certainly grow and “the sense of the American economy not working is going to be worse.” Later this morning, the University of Michigan confidence is expected to register at 57 in September, up from 55.7 in the month prior. With a light economic docket, expect the greenback to continue to trade in lock-step with equity markets, possibly strengthening further as U.S. stock futures foreshadow a lower open.
The Euro retraced nearly all of its gains from yesterday’s trading session against the U.S. dollar on concern issues of collateral required by some nations to take part in another Greek bailout will hinder agreement at a meeting of European officials today. Finland’s Finance Minister Jutta Urpilainen said it was unlikely an agreement on collateral would be reached at the gathering in Wroclaw, Poland. The debt overhang is taking its toll on the wider economy, the European Commission said yesterday. It cut its growth forecast to 0.2% from the third quarter and 0.1% in the fourth, down from earlier projections of 0.4% for both periods.
The Japanese yen maintained its tight range from the past week against the greenback as the two continue to ebb and flow with the prevailing risk sentiment. Bank of Japan board member Sayuri Shirai said she hasn’t ruled out any monetary stimulus tools as European and American economies slow and an appreciating yen threatens Japan’s post-disaster recovery. Since the March 11th quake, the central bank has done everything from bolstering asset-programs to increasing liquidity provisions to prevent the world’s third largest economy from sinking into a recession.
The British pound floated lower overnight and is headed for its fourth consecutive weekly decline against the U.S. dollar on speculation a deteriorating economic outlook will spur the Bank of England to introduce additional monetary stimulus. Indeed, the sterling is currently trading near its weakest level in eight months against the greenback. Data this week has showed that U.K. retail sales fell, jobless claims rose and inflation accelerated. Business Secretary Vince Cable called for further monetary stimulus and recommended the use of “creative mechanisms” that go beyond the purchase of government bonds. Chancellor of Exchequer George Osborne and Deputy Prime Minister Nick Clegg have emphasized the possibility of further monetary easing to help revive Britain’s economy.
