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 4th 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.
