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US$ Mostly Flat Ahead of EU Summit; Aussie Falls

The U.S. dollar traded in a mixed direction overnight as traders await news from the European crisis summit scheduled to start this afternoon in Brussels.  Overall, the U.S. dollar index remains at a 6-week low after a senior Fed official opened the door to the possibility of further quantitative easing.  Federal Reserve Bank of New York President William C. Dudley said the central bank has the option of starting a third round of asset purchases, which has weighed on the greenback.  However, the U.S. dollar rallied versus the Australian dollar after the statistics bureau said the consumer price index only rose 0.6% last quarter from the previous three months.  The slowing inflation data has sparked some speculation the Reserve Bank of Australia may cut interest rates as soon as their next meeting.  Meanwhile, the economic docket showed that orders for U.S. durable excluding transportation equipment rose in September by the most in six months.  Demand for goods meant to last at least three years, outside of airplanes and automobiles, climbed 1.7%, exceeding economists’ forecasts.  Total bookings fell 0.8%, slightly beating expectations of a 1.0% decline.  Later, New home sales are expected to rise 1.7% in September after falling 2.3% in the month prior.

The Euro held a tight range overnight but remains at 6-week highs against the U.S. dollar before a summit of all 27 European union leaders begins today in Brussels.  It will mark the 14^th crisis summit in 21 months.  The meeting today comes after six days of haggling among finance ministers, central and commercial bankers, chancellors, presidents and prime ministers over the shape of a second bailout for Greece, the recapitalization of banks and the retooling of the 440 billion-euro bailout fund.  A meeting of finance ministers originally scheduled for today was cancelled yesterday.  There was no major economic activity released today in the Euro zone.

The Japanese yen rose to a post-World War II high versus the U.S. dollar and gained against the Euro as concern U.S. growth is slowing and European leaders will fail to resolve the region’s debt crisis boosted demand for the relative safety of the Japanese currency.  Meanwhile, the Nikkei newspaper reported that Bank of Japan officials will discuss more monetary easing at a meeting tomorrow.  Measures to mitigate the impact of a strong yen on Japan’s economy may include expanding a 50-trillion yen asset purchase program by 5 trillion yen and purchasing bonds with maturities longer than two years, Nikkei said without citing their source. 

The British pound fell modestly against the U.S. dollar as poor economic data painted a dour outlook for the U.K. economy.  A gauge for factory orders declined to minus 18 in October, its weakest reading in a year, from minus 9 the previous month, the Confederation of British Industry said in a report in London today.  In addition, a quarterly measure of business sentiment fell to minus 30, the lowest since April 2009, from minus 16 in July.

US$ Improves From 6-Week Low Versus Euro

The U.S. dollar held a relatively tight range against the majority of its counterparts and drifted slightly higher versus the Euro as the EU debt crisis summit in Brussels over the weekend failed to impress investors.  However, the dollar’s advance was dampened as Asian equities rose amid signs of growth in China and Japan.  Indeed, an index of Chinese purchasing managers showed a rebound in new orders and output.  The U.S. economic docket showed that U.S. economic activity rose in September, according to the Federal Reserve Bank of Chicago.  The Chicago Fed national index, which draws on 85 economic indicators, was minus 0.22 in September versus minus 0.59 in August.  Tomorrow sees the release of the S&P Case/Shiller Home Price index and consumer confidence, followed by durable goods orders and new home sales on Wednesday.  Weekly jobless claims, gross domestic product and pending home sales are slated for Thursday, while personal income and consumer sentiment will round out the week on Friday. 

The Euro pulled back from a 6-week high versus the U.S. dollar as Euro-zone policymakers seemed to make little progress toward what was being billed as yet another “comprehensive” solution to the sovereign risk malaise that continues to plague the currency bloc. The broad outline of what was needed was well-established heading into the summit. Officials had to acknowledge that Greece is bust and initiate restructuring, formulate a plan to recapitalize banks that take heavy losses on holdings of Greek debt, and give a tangible cash-backed commitment to ensure other EU members will not be allowed to fail to prevent contagion.  However, leaders failed on all three accounts to provide details of a strategy to resolve the debt crisis.  The summit excluded a forced restructuring of Greece’s debt, keeping with the policy of encouraging bondholders to accept “voluntary” losses to help restore the country’s finances.  Leaders will meet again on October 26^th. 

The Japanese yen held at post-World War II highs versus the U.S. dollar overnight.  Japan’s exports increased more than expected in September.  Shipments rose 2.4% last month from a year earlier, the Ministry of Finance said in Tokyo today.  The print beat analysts forecast for a 1.0% increase.  However, recent economic data have suggested that the currency appreciation and the global slowdown are taking their toll on the world’s third largest economy.  Industrial output, retails sales and exports were all weaker than economist forecasts in August. 

The British pound was largely unchanged against the U.S. dollar but rose to a 2-week high versus the Euro on uncertainty that European leaders will forge a durable solution to the debt crisis.  The pound saw residual strength after data released on Friday showed that the U.K. budget deficit narrowed in September more than economists forecast.  Meanwhile, U.K. Prime Minister David Cameron and French President Nicolas Sarkozy yesterday argued over the right of non-euro nations to attend the October 26^th meetings as leaders scrabble to reach and agreement.  Cameron said the talks should include leaders from all European Union states.  Sarkozy replied if the U.K. wanted to be involved it should have joined the Euro. 

U.S. Dollar Falls on Renewed European Optimism

The U.S. dollar retreated overnight against most of its counterparts, reversing gains from yesterday’s trading session.  The U.S. dollar index fell as European stock indexes pared its losses and American stock futures advanced on growing optimism that European finance ministers will agree to a plan to expand the Euro-zone’s bailout fund.  The economic docket showed that the number of Americans filing applications for unemployment benefits declined last week to a level that shows little improvement in the labor market.  Jobless claims dropped by 6K to 403K in the week ended October 15^th, Labor Department figures showed this morning.  The print was close to the median forecast of a drop to 400K.  Later this morning, Leading indicators are expected to rise 0.2% in September after gaining 0.3% in August.  In addition, existing home sales month over month are expected to fall 2.3% in September after rallying 7.7% the month prior.

 

The Euro pushed higher overnight as Europe’s new bailout fund may be authorized to provide credit lines amounting to as much as 10.0% of a country’s economy, according to a draft document obtained by Bloomberg News.  The enhanced fund, called the European Financial Stability Facility (EFSF), may be able to offer loans to countries “before they face difficulties raising funds” in bond markets, according to the draft guidelines.  The Euro also found support after European Commission President Jose Barroso said a “positive outcome” was possible at an October 23^rd meting of European leaders in Brussels.  The policy makers are searching for ways to maximize the firepower of their bailout fund as the crisis threatens to spread to the region’s larger economies.  Expect the Euro to trade in volatile ranges over the coming days as traders look for anything to reinforce its hope that we are going to see a comprehensive plan this weekend.

 

Once again, the Japanese yen held familiar ranges against the U.S. dollar overnight.  Meanwhile, worries over the strength of the Japanese currency negatively affecting the export-driven recovery have prompted the Japanese government to seek additional measures to weaken the yen.  Japan plans to spend an extra 4 trillion yen ($52 billion) to cope with a surging yen that has dampened the world’s third largest economy.  The government will add 2 trillion yen to the 8 trillion yen in foreign-exchange reserves.  An additional 2 trillion yen will be allocated to encourage investment in domestic plans and to hire workers. 

 

The British pound fell versus the Euro on optimism progress is being made in a plan to end the European debt crisis.  However, the sterling remained largely unchanged against the U.S. dollar.  The economic docket showed the retail sales including fuel rose 0.6% from August when they fell a revised 0.4%, the Office for National Statistics said today in London.  That’s the biggest gain since April and compares with the median forecast of economists for no change. 

US$ Gains Versus Euro as Moody's Puts France on Warning

The U.S. dollar gained overnight as global equities ticked lower while China reported weak data and Moody’s Investor Service said France’s top credit rating is under pressure.  The dollar also rose against its commodity-based counterparts as the price of oil and precious metals declined.  With U.S. equity futures showing American shares will also fall, the U.S. dollar may get a boost during our trading session.  However, economic data released today will likely affect stock markets.  Wholesale prices in the U.S. rose more than forecast in September, boosted by gasoline, food and trucks, indicating inflationary pressures remain mild in production.  The producer price index climbed 0.8%, the most in five months, after no change in August, Labor Department figures showed today.  The print was higher than the 0.2% projected by economists.  The so-called core measure, which excludes volatile food and energy, gained 0.2% also more than predicted.  Later this morning, the NAHB Housing Market Index is expected to register at 15, up from 14 the month prior.

The Euro fell for a second day after Moody’s Investor Service warned that France may lose its top credit rating, adding to concern that European leaders will find it difficult to resolve the region’s debt crisis.  France’s Aaa credit rating is under threat from worsening metrics and the potential for additional liabilities from the regional crisis, Moody’s said last night.  The nation’s financial strength has weakened because of the global financial crisis, making its debt measures the worst among its Aaa rated peers, Moody’s said.  The Euro extended its decline after the Zew Center for European Economic Research said its index of German investor confidence dropped to the lowest in nearly three years.  The Euro fell yesterday as German Chancellor Angela Merkel’s office knocked down what it called “dreams” that the Oct. 23 summit would resolve the debt crisis. 

The British pound was largely unchanged versus the U.S. dollar overnight even as stocks slid and record-tying U.K. inflation failed to persuade investors that the Bank of England will temper its bond-buying program after it was revived this month.  Consumer price gains accelerated to match a record high in September, rising 5.2% from a year earlier, the Office for National Statistics in London said today.  The U.K. central bank announced an extension of its bond-purchase program to 275 billion pounds from 200 billion pounds on October 6, saying the “deterioration in the outlook has made it more likely” that inflation will undershoot the bank’s 2.0% target rate in the near term.  Bank of England Governor Mervyn King will deliver a speech in Liverpool today and minutes of the central decision showing how policy makers voted will be published tomorrow. 

US$ Pulls Back From Monthly Low Versus Euro

The U.S. dollar rallied across the board overnight as stocks recoiled after German Chancellor Angela Merkel’s spokesman said Europe’s leaders won’t provide the quick resolution to the region’s debt crisis that global policy makers were pushing for at a summit this weekend.  The Dollar Index advanced on speculation the European debt plan will fail spurred demand for safer investments.  The Australian dollar was under pressure before the Reserve Bank of Australia releases minutes tomorrow of its meeting on Oct 4^th when Governor Glenn Stevens signaled there’s more scope to cut interest rates if necessary.  This morning’s economic docket showed that manufacturing in the New York region contracted in October at a faster pace than forecast.  New York’s general economic index rose to minus 8.5 from minus 8.8 in September.  Later this morning, industrial production is expected to expand at a sluggish 0.2% in September after gaining the same amount in August.  Tomorrow sees the release of producer price index and the housing market index, followed by the consumer price index and housing starts on Wednesday.  With no major data scheduled on Friday, weekly jobless claims, existing homes sales and the Philadelphia Fed will round out the week on Thursday.    

The Euro fell from its monthly high against the U.S. dollar as investors pared back their optimism over a deal to keep Greece from default.  Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over Monday won’t be able to be fulfilled,” Steffen Seibert, the German Chancellor’s chief spokesman said today.  Group of 20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of the emerging plan to avoid Greek default, bolster banks and curb contagion.  October 23 has been offered as a deadline of it to be delivered.  Europe’s plan, which has still to be made public, includes writing down Greek bonds by as much as 50%, establishing a backstop for banks and increasing the strength of the 440 billion-euro European Financial Stability Facility, people familiar with the matter said last week.

The Japanese yen fell near a one-month low versus the U.S. dollar but still remains within striking distance of its strongest level since World War II against the greenback.  Japan’s government downgraded its assessment of the economy for the first time since April as the strengthening yen and slowing global growth weighed on prospects for an export-driven recovery.  “The Japanese economy is still picking up although the pace is decelerating,” the Cabinet Office said it its monthly report today.  

The British pound weakened amid concern that U.K. growth will falter and as European leaders struggle to meet a one-week deadline for a plan to stem the euro-region’s debt crisis.  Ernst & Young LLP’s ITEM Club cut its U.K. growth forecast and said the Bank of England should lower its main interest rate.  Should euro-region leaders fail to quell the crisis, larger doses of so-called quantitative easing will be insufficient in the U.K. and the government may need to provide additional support such as tax cuts to boost growth, the ITEM research group said.  The Bank of England increased its bond-purchase program to 275 billion pounds from 200 billion pounds this month.   

US$ Rebound, Commodities Fall

The U.S. dollar rebounded overnight, retracing its steep losses from the day prior.  The safe-haven greenback and the Japanese yen found support after a Chinese report showed exports rose the least in seven months and a forecast showed that Germany’s economic growth will under perform previous estimates.  The U.S. dollar also rallied versus the commodity-based currencies.  Indeed, the South African rand fell from a two-week high and the Canadian loonie slumped as the price of oil retreated nearly 2.0%.  Meanwhile, the U.S. economic docket showed that the U.S. trade deficit was little changed at $45.6 billion in August.  The shortfall compared with a median projection of $45.8 billion.  Also, the number of Americans filing claims for jobless benefits was little changed last week, showing the labor market is making scant progress.  Applications for unemployment insurance payments decreased 1K to 404K, according to the Labor Department.  Market participants will later shift their focus to a slew of data slated for release tomorrow.  In the interim, the U.S. dollar may see continued modest support as U.S. equity futures foreshadow a lower open. 

The Euro declined from near a five-week high against the U.S. dollar after German economic institutes cut their projections for the nation’s growth and the European Central Bank said the involvement of private-sector banks in bailouts would risk financial stability.  A bi-annual independent report commissioned by the German government forecast the nation’s growth will slow to 0.8% next year from 2.9% in 2011.  Earlier this year, the group projected the economy would expand 2.0% in 2012.  Also, the ECB said it its monthly bulletin that while private-sector involvement “is certain to place significant stress on the solvency of banks and other private financial institutions in the country concerned, it will also have an impact on the balance sheets of banks in other euro-area countries.  The dour projections and the dovish statement from the ECB caused European stocks to fall over 1.0%, weighing on the higher-yielding Euro. 

The Japanese yen reversed yesterday’s losses against all of its counterparts as failing global risk appetite boosted demand for the safe-haven.  The yen also found support after China’s custom bureau said exports rose a less-than-forecast 17.1% in September from a year earlier.  The yen fell yesterday amid speculation that the Bank of Japan would take further steps to weaken the currency from near post-war highs against the U.S. dollar.  Japan’s currency tends to appreciate during economic and financial turmoil because the country’s current account surplus makes the nation less reliant on foreign capital. 

The British pound fell against the U.S. dollar as market participants raised their bets a weakening economy will bolster the case for further central-bank asset purchases.  Last week, the Bank of England announced that it would be expanding its program of bond purchases from 200 billion pounds to 275 billion pounds, the biggest increase since March 2009.  Charlie Bean, deputy governor of the U.K. central bank, said the monetary policy committee “could well decide” to expand quantitative easing again, the Guardian reported.  Britain’s economic outlook is worsening as the government implements its deepest public-spending cuts since World War II to reduce the nation’s fiscal deficit amid investor concern about the ability of governments around the world to repay debt. 

US$ Dollar Falls on European Optimism

The U.S. dollar tumbled against the majority of its counterparts on widespread risk appetite as traders increased bets that European policymakers may finally provide more concrete details of a plan to cease the European debt crisis.  Indeed, European indexes climbed over 1.0% and U.S. equity futures point to a higher open for American shares.  The Australian and New Zealand both surged versus the greenback as Asian stocks rebounded.  The Aussie also gained after data showed that home-loan approvals rose for a fifth month, adding to signs the domestic economy remains resilient.  The Kiwi rose as a gauge of house prices rose to a 22-month high.  Meanwhile, the economic docket showed that mortgage applications in the U.S. increased 1.3% last week as borrowing costs close to all-time lows helped boost purchases and refinancing.  The greenback will likely remain under pressure this morning as market participants add riskier assets to their portfolio, but expect traders to soon turn their attention to the release of the minutes of the last FOMC meeting today at 2 p.m.

The Euro rose to a three-week high against the U.S. dollar on stronger than expected economic data and ahead of European Commission President Jose Barroso presentation on proposals for recapitalizing banks.  Barroso today will unveil proposals on coordinating bank recapitalizations across the EU, on Greece and private-sector participation in its bailout and on the region’s rescue funds.  Barroso will announce the plan in a speech to the European Parliament this morning.  The euro extended gains after the European Union’s statistics office said industrial production in the euro area advanced 1.2% from July, the biggest increase since November 2010.  The print beat forecasts for a drop of 0.8%.  The Euro’s advance was tempered as political turmoil in Slovakia delayed its approval of Europe’s enhanced bailout fund.  Prime Minister Iveta Radicova wants to start talks today with opposition on a second vote, after the measure was rejected late yesterday.  Slovakia is the only euro-area country yet to pass the plan. 

The Japanese yen fell modestly versus the U.S. dollar but remains within in 2.0% of its post-war high against the greenback.  The economic docket showed that machinery orders for the island nation rebounded in August from the month prior.  Bookings rose 11.0% in August from July, the fastest increase in a year, according to the Cabinet office.  Nevertheless, the strength of the yen has dampened Japan’s export-driven economy.  Nissan Motor Co. chief executive officer Carlos Ghosn said last week that the yen appreciation may cause a “hollowing out” of Japan’s industrial base. 

The British pound also rose to a three-week high on optimism European leaders will resolve the region’s sovereign debt crisis.  European Commissioner Olli Rehn said there is a fairly good chance that Europe could avert a “calamity.”  The pound retraced some of its gains after a report showed U.K. unemployment rose 8.1% from 7.9% in the three months through July.  The number of unemployed increased to 2.57 million, the most since 1994 while jobless claims rose for a seventh month in September. 

US$ Rebounds After Tumbling Yesterday

The U.S. dollar recovered modestly overnight against most of its trading partners after falling nearly 2.0% against the Euro on Monday.  The dollar weakened throughout yesterday’s trading session on optimism German Chancellor Angela Merkel and French President Nicolas Sarkozy reached an agreement to recapitalize European banks.  The news sent global equities higher and weighed on the safe-haven greenback.  The U.S. dollar also rebounded against the commodity-based currencies as the price of oil and precious metals retreated.  The New Zealand dollar came under pressure as a government report showed that the government budget deficit was wider than forecast.  There is no major economic data slated to be released in the United States so the U.S. dollar may continue its pullback from yesterday as U.S. equity futures foreshadow a lower open for American shares.  Tomorrow sees the release of the minutes from the Fed’s FOMC meeting last month, followed by weekly jobless claims on Thursday.  Import/Export prices, retail sales and the University of Michigan confidence number will round out the economic docket on Friday.

The Euro retreated from recent highs overnight as Slovakian lawmakers prepared to vote on a plan to retool the euro region’s fund.  The Euro rallied yesterday after Angela Merkel and Nicolas Sarkozy announced yesterday that they have given themselves three weeks to devise a plan to recapitalize banks and find a “durable” solution for Greece’s debt load.  Nevertheless, the European debt crisis continues to be a concern for traders who worry that Greece default.  While the Euro may see some reprieve in the near-term, the common currency will likely come under renewed pressure in the coming months as the debt crisis will weigh on global risk appetite.  Indeed, European Central Bank President Jean-Claude Trichet said Europe’s debt crisis now threatens the region’s financial system.  “The crisis has reached a systemic dimension,” Trichet told lawmakers in Brussels today. 

The Japanese yen remained in familiar ranges against the U.S. dollar as the pair continues to ebb and flow with the prevailing risk sentiment.  Risks of intervention by the Bank of Japan have kept the yen from advancing further versus the U.S. dollar.  Nevertheless, the yen remains near a post World War II high against the greenback. 

The British pound snapped a two-day gain versus the U.S. dollar as poor manufacturing data painted a dour outlook for the British economy.  Factory orders fell 0.3% from July, when it slid a revised 0.2%, the Office for National Statistics said in London.  The print disappointed economists’ forecast of a 0.2% decline.  The data follows poor growth data last week.  The U.K. economy expanded at a dismal 0.1% in the second quarter, lower than 0.2% originally published.

US$ Headed for Weekly Loss Versus EUR on Strong Jobs Data

The U.S. dollar was mostly flat against the majority of its counterparts overnight as market participants await this morning’s economic data.  However, the greenback retreated versus the British pound, giving back all of its steep gains from the day prior.  The Australian dollar rose for the fourth straight day against the U.S. dollar as higher Asian stocks boosted demand for the higher-yielding asset.  This morning’s data showed that employers added more payrolls than forecast in September, job gains were revised up in the prior two months and hours and earnings increased, helping ease concerns the U.S. labor market is deteriorating.  Payrolls climbed by 103K workers after a revised 57K increase in the prior month that was more than originally estimated, the Labor Department reported today.  The jobless rate held steady at 9.1%.  Faster job growth may be a sign employers remain confident the U.S. will avoid a renewed slump, even as unemployment is forecast to remain above 8.0% through 2013.  U.S. equity futures shot higher following the data and has put the U.S. dollar under pressure across the board.

The Euro has gained modestly versus the U.S. dollar in early trading following better than expected U.S. jobs data.  The euro is headed for a weekly gain against the U.S. dollar, snapping two weeks of losses, on speculation financial support for European banks will help stem the region’s debt crisis.  The Euro gained yesterday after the European Central Bank said it will reintroduce yearlong loans and resume purchases of covered bonds to encourage lending.  While the ECB took steps to bolster the region’s lenders, the European Commission is pushing for a coordinated capital injection into banks.  German Chancellor Angela Merkel said policy makers “shouldn’t hesitate” if it turns out institutions are undercapitalized. 

The Japanese yen once again was unchanged versus the U.S. dollar overnight.  Meanwhile, Bank of Japan Governor Masaaki Shirakawa said the yen’s strengthening risks exacting “lasting damage” to the nation’s economy even as the central bank refrained from adding more monetary stimulus.  Shirakawa and his policy board members kept the overnight lending rate between 0 and 0.1% in a unanimous decision at a meeting in Tokyo today.  They also left credit and asset-buying purchases totaling 50 trillion yen unchanged. 

The British pound strengthened the most in a week against the U.S. dollar amid optimism the Bank of England’s decision to reactivate its bond-purchases program will help revive the U.K.’s weakening economy.  The pound initially fell yesterday after the announcement of further measures that included expanding the central bank’s quantitative easing program by 75 billion pounds.  Governor Mervyn King said he was “confident” the measures would work.  The currency was able to hold its gains even after Moody’s Investor Service downgraded 12 British financials institutions. 

US$ Gains As Moody's Downgrades Italy

The U.S. dollar held in favorable ranges versus the majority of its counterparts despite rising European equities and U.S. stock futures showing the American shares will likely add to yesterday’s gains.  The U.S. dollar fell late yesterday as stocks turned postivie after Federal Reserve Chairman Ben S. Bernanke signaled willingness to step measures to spur U.S. growth.  Meanwhile, today’s economic docket showed that mortgage applications in the U.S. declined last week, weighed down by a drop in purchases and less refinancing.  The Mortgage Bankers Association’s index fell 4.3%, the Washington-based group reported today.  Also, companies in the U.S. added 91K jobs in September, according to ADP Employer Services.  The increase followed a revised 89K gain in the prior month and beat forecasts for a 75K gain this month.  The print may foreshadow a modestly stronger Non-farm payrolls number on Friday as the economy struggles to add jobs. 

The Euro fell against most of its major rivals after Moody’s Investor Service cut Italy’s debt ranking and amid speculation a slowing economy will prompt the European Central Bank to expand stimulus at a meeting tomorrow.  Moody’s cut Italy’s ratings three levels to A2 from Aa2, citing concern the government will struggle to reduce the region’s second-largest debt amid weak growth.  Standard & Poors downgraded Italy last month for the first time in five years.  Meanwhile, some traders have increased their bets that the ECB will lower borrowing cost tomorrow to fuel growth.  Others expect the central bank to cut interest rates in the coming months.  The economic docket showed that euro-area services and manufacturing output contracted more than estimated in September, a report showed today. 

The British pound fell against the U.S. dollar after a government report showed U.K. economic growth slowed more than analysts forecast last quarter, adding pressure on the central bank to keep interest rates low.  The sterling has been under pressure on speculation the Bank of England will boost its program of bond purchases as soon as its policy meeting tomorrow.  Gross domestic product rose 0.1% from the first quarter, lower than the 0.2% previously published, the Office for National Statistics said today in London. Consumer spending plunged 0.8%, the most since the first quarter of 2009.