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.
