The U.S. dollar fell overnight as European stocks rallied and American equity futures ticked higher, sapping demand for the greenback as a safe-haven. European equities have soared on speculation that Greek Prime Minister George Papandreou will withdraw his proposal for a referendum on the nation’s bailout, easing concern voters will reject the plan. The dollar was also under pressure against the commodity-based currencies, such as the South African rand, as the price of precious metals and crude oil rose. Meanwhile, the economic docket showed that fewer Americans filed application for unemployment last week. Jobless claims fell by 9K to 397K, the fewest in a month, the Labor Department reported this morning. Later, factory orders are expected to shrink 0.2% in September, flat from the month prior. However, expect the currency markets to remain focused on developments at the G-20 meeting in Cannes, France and any news surrounding the Greek government and bailout deal throughout the day.
The Euro rose for a second day versus the greenback on speculation that Greece may no longer hold a referendum over their bailout. Led by Germany and France, European leaders yesterday cut off financial aid for Greece until the planned referendum in December determines whether it deserves a fresh batch of loans needed to stave off default. “The referendum will resolve around nothing less than the question: does Greece want to stay in the euro, yes or no?” German Chancellor Merkel told reporters in Cannes, France. French President Nicolas Sarkozy said Papandreou’s government won’t get a “single cent” of assistance if voters reject the plan. There have been signs that Papandreou may lose a confidence vote in Parliament tomorrow. A “no” confidence vote would leave Greece temporarily without a government, but would likely dash the chances of the referendum. This morning Mario Draghi chairs his first policy meeting as European Central Bank President. The ECB was expected to maintain its main benchmark interest rate at 1.5%. However, the central bank surprised markets and cut their interest rate by 25 basis points to 1.25%. The news has sent the Euro sharply lower in early trading.
The British pound found modest support versus the U.S. dollar on widespread risk assumption in European and American markets. However the pound’s strength was hindered after a report showed a U.K. services index fell more than forecast in October, Markit Economics and Chartered Institute of Purchasing and Supply said today. The gauge of services based on a survey of purchasing managers declined to 51.3 from 52.9 in September.
