The U.S. dollar ratcheted higher against the majority of its major counterparts as global stocks dropped amid speculation the Euro-zone’s debt crisis will deepen. European indexes fell over 1.0% and Asian shares also declined, bolstering demand for the safe-haven U.S. dollar. Indeed, the U.S. dollar Index advanced to an eight-week high. The U.S. dollar continued to push higher against the Swiss franc after the Swiss National Bank said earlier this week that it has set a ceiling for the currency and said it would use “unlimited” quantities of cash to cap any gains. Today’s economic agenda is light with only wholesale inventories expected to cross the wire at 10 a.m., so expect the greenback to take its cue from U.S. stock markets. Equity futures showed little reaction to President Obama’s job’s speech at a joint session of Congress last night, so we may see the U.S. dollar hold tight ranges today after a relatively volatile early part of the week.
The Euro declined to a 6-month low against the dollar overnight on speculation the European Central Bank will cut interest rates amid slowing global growth and the continued debt crisis. The ECB left its benchmark rate at 1.5% yesterday but cut its 2011 and 2012 growth forecasts at a policy meeting in Frankfurt. ECB head Jean-Claude Trichet held a more dovish outlook on inflation than in previous months, causing traders to increase their bets the central bank may have to lower rates over the next twelve months. The Euro was also under pressure after Greek bond yields reached record highs and European equities fell over 1.0%. There was no major economic data released in the Euro-zone today.
The Japanese yen gained against most of its rivals as global equities dipped. However, the yen fell against the U.S. dollar following poor economic data. Japan’s economy contracted more than the government initially estimated in the second quarter as capital spending decreased, adding to concern the stronger yen may derail the nation’s recovery from the March earthquake. Gross domestic product shrank at an annualized 2.1% in the second quarter, more than the 1.3% contraction reported last month, the Cabinet Office said today.
The British pound was mostly unchanged versus the U.S. dollar but gained for a second days against the Euro after a report showed U.K. producer price growth accelerated at the fastest pace since 2008. The cost of goods at factory gates rose by 6.1% from a year earlier, the Office for National Statistics said today. The pound has found residual support from yesterday’s Bank of England decision to keep interest rates unchanged. Most economists predicted the decision but the currency strengthened after the central bank resisted calls to boost its asset-purchase program.
