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US$ Flat After ECB Cuts Rates, BoE Holds

The U.S. dollar was largely unchanged overnight against the majority of its counterparts before European Central Bank President Mario Draghi’s press conference following the ECB’s interest rate decision.  The central bank cut interest rates by 25 basis points early this morning, in line with expectations.  The greenback has struggled to find a definitive direction as European equities are flat and Dow Industrial futures have fluctuated.  Meanwhile, the economic docket showed that fewer Americans than forecast filed applications for unemployment benefits last week.  Jobless claims dropped by 23K to 381K, the fewest since February, Labor Department figures showed today in Washington.  Despite the data, expect traders to focus on comments from the ECB head and expectations of the European Summit in Brussels tomorrow. 

The Euro traded in rather flat ranges overnight and remains unchanged in early trading after the European Central Bank lowered its benchmark interest rate in a bid to avoid a recession.  Indeed, the central bank lowered its refinancing rate by a quarter percentage point to 1.0%, meeting expectations.  ECB President Mario Draghi will hold a press conference this morning and his commentary will likely dictate the direction of the EUR/USD today.  Traders will then shift their focus to the ongoing summit of European leaders in Brussels.  French President Nicolas Sarkozy and German Chancellor Angela Merkel this week proposed amending European treaties to tighten rules on deficit spending.  In a letter to European Union President Herman Van Rompuy, the French and German leaders said they want a decision at this week’s summit so the steps can be ready by March 2012.  Standard & Poor’s yesterday placed the European Union’s AAA long-term rating on “creditwatch negative” after a similar action on 15 of the 17 euro members earlier this week.  S&P said the ratings may be cut depending on the result of the summit. 

The Japanese yen gained against the majority of its counterparts, including the U.S. dollar, as falling Asian equities boosted demand for the relative safety of the yen.  Meanwhile, the economic docket showed that Japan’s machinery orders unexpectedly fell for a second month in October, signaling that a slowing global economy and the strong yen are prompting companies to postpone investment.  Bookings, an indicator of capital spending, decreased 6.9% from a month earlier, the Cabinet Office said in Tokyo today.

The British pound held flat against the U.S. dollar and the British pound as Bank of England officials maintained their current round of stimulus as European officials hold a summit on the debt turmoil that Governor Mervyn King says is beyond his control.  The MCP voted to keep the target of bond purchases at 275 billion pounds, as predicted by all the economists in a Bloomberg News Survey.  The central bank increased its target by 75 billion pounds in October.  King said last month there’s little point in “fine tuning” policy as officials watch to see how events play out.  The Bank of England also left their benchmark interest rate at a record low of 0.5%. 

US$ Holds Tight Range Ahead of ECB, EU Summit

The U.S. dollar advanced modestly against a number of its counterparts overnight, but appears stuck in tight ranges ahead of tomorrow’s European Central Bank meeting and a summit of European leaders on Friday.  The greenback fell against the Australian dollar after the Bureau of Statistics said the economy expanded 1.0% in the three months ended September 30, after growing a revised 1.4% in the prior quarter.  The revised print represents the fastest growth pace in four years.  The Canadian dollar remains near its highest level in a month as the price of crude oil remains above $100 a barrel.  The Japanese yen remained unchanged again versus the U.S. dollar, but gained against the Euro as European equity markets faltered.  Today’s economic docket remains light with only MBA Mortgage applications set for release.  Mortgage applications in the U.S. surged last week as borrowing costs that fell to near record lows sparked purchases and refinancing.  The index increased 12.8% from the prior week, the Washington-based group reported today.  The data has not had an immediate effect on the U.S. dollar in early trading. 

The Euro came under pressure overnight after a German official told reporter in Berlin today that Germany rejects proposals to combine the current and permanent euro-area rescue funds.  The official’s comments came after the Financial Times reported yesterday that European Union leaders may agree on a package including the existing 440 billion euro bailout fund and a new 500 billion euro facility.  The Euro has weakened after comments from the German official dampened down expectations of an agreement on the rescue fund coming out of the EU summit being held this Friday in Brussels.  Meanwhile, the European Central Bank is expected to reduce its benchmark interest rate to 1.0% from 1.25% at tomorrow’s meeting, according to a survey of economists.  While the move is likely priced into the market, any bearish commentary from the central bank will weigh on the common currency. 

The British pound held flat against the U.S. dollar overnight despite disappointing data released in the U.K.  U.K. manufacturing output fell more than economists forecast in October as the intensifying euro-area debt crisis undermined demand in Britain’s biggest export market.  Factory orders dropped 0.7% from September, the biggest decline since April, the Office for National Statistics said today in London.  Manufacturers are suffering as the sovereign debt crisis and a cooling global economy jeopardize the outlook for exporters. 

US$ Mostly Flat, Gains Against Swiss, Aussie

The U.S. dollar held a mostly flat range against the majority of its counterparts overnight as European equities fluctuated and American stock futures look to open flat this morning.  However, the Japanese yen rose against the majority of its rivals, save the U.S. dollar, after Standard and Poor’s said it may be the credit rating of 15 euro-region countries and as Asian equities tumbled over 1.0%.  The U.S. dollar did rise against the Swiss franc after the Federal Statistics office said consumer prices decreased 0.5% from a year earlier, the biggest drop since October 2009.  The Swiss government said last week it is willing to “examine the feasibility of supporting measures” to aid the central bank in its defense of a 1.20 ceiling versus the Euro.  The greenback also strengthened against the Australian dollar after the Reserve Bank of Australia cut its key cash rate target by a quarter percentage point to 4.25%.  Reserve Bank Governor Glenn Stevens and his board said in a statement that “financing conditions have become much more difficult, especially in Europe.”  The greenback could continue to gain against the Aussie dollar over the medium-term as many analysts expect the Reserve Bank to have the scope to lower interest rates further in the future.  There is no major economic data slated for release in the United States today.

The Euro remained flat overnight, holding on to its losses from late yesterday after rating agency Standard and Poor’s said it may cut the credit rating of Germany, France and 13 other members of the Euro, sapping demand for the higher-yielding currency.  The euro area’s six AAA rated countries are among those placed on negative outlook, and their ratings maybe cut depending on the result of a summit of European leaders of December 9^th, S&P said yesterday in a statement.  German Chancellor Angela Merkel and French President Nicolas Sarkozy responded in a joint statement saying they “took note” of S&P’s move.  A closer fiscal union in the EU will “strengthen coordination of budget and economic policy,” and promote stability and growth, the statement said.  Meanwhile, a report showed that German factory orders surged the most in 19 months in October.  Traders will now look to Thursday’s European Central Bank meeting in which the bank is expected to cut its benchmark interest rate to 1.0% from 1.25%.

The British pound was largely unchanged overnight even as the Bank of England introduced a new sterling liquidity facility to address potential financial-market strains as Europe’s sovereign debt crisis intensifies.  The Bank’s new Extended Collateral Term Repo Facility will provide funding against the widest range of collateral and will help ensure that banks have sufficient access to sterling liquidity “to mitigate risks arising from unexpected shocks,” the bank said.  The measure comes a week after the Bank of England, the Federal Reserve and four other central banks made it cheaper for banks to borrow dollars in emergencies.  The moves indicate officials are taking preemptive measures in case Europe’s debt crisis escalates further and freezes markets. 

US$ Remains Bearish on Higher Global Equities, Italian Budget Plan

The U.S. dollar continued its bearish momentum against the majority of its major rivals on higher global equities after Italy’s cabinet approved a plan to cut its deficit.  Indeed, European equities rose over 1.0% and Asian stocks followed suite.  The dollar has come under added pressure as American stock futures foreshadow U.S. shares will open up nearly 1.0% as well.  The dollar was largely unchanged versus the Japanese yen as the two “safe-haven” currencies continue to ebb and flow with the prevailing risk sentiment.  Later this morning, U.S. factory orders are expected to contract by 0.3% in October after rising 0.3% in the month prior.  In addition, the ISM Non-Manufacturing composite is expected to show that service industries in the U.S. probably grew in November to the fastest pace in six months.  There is no major economic data slated for Tuesday or Wednesday.  Weekly jobless claims will be released on Thursday, while Consumer sentiment will round out the week on Friday.

The Euro rose against the U.S. dollar again after Italian Prime Minister Mario Monti announced 30 billion euros of austerity and growth measures yesterday.  The premier will present the package, which includes a tax on luxury goods, resurrects a property levy on first homes, and forces many workers to delay retirement.  The proposal will go before both houses of parliament today.  At the same time, German Chancellor Angela Merkel is scheduled to meet with President Nicolas Sarkozy to work on a plan for stricter enforcement of the region’s deficit rules.  On Thursday, the European Central Bank is expected to cut its benchmark interest rate to 1.0% according to the median estimate of economists surveyed by Bloomberg news.  Then on Friday, European Union leaders will hold a summit as they take another run at fixing the debt crisis.

The British pound strengthened against the U.S. dollar as optimism that euro-area leaders are acting to ease the region’s debt crisis spurred demand for riskier assets such as stocks and the sterling.  The pound also found modest strength as an index of U.K. services unexpectedly gained in November.  The gauge of service activity based on a survey of purchasing managers rose to 52.1 from 51.3 in October, according to Markit Economics and the Chartered Institute of Purchasing and Supply.  The median estimate of a Bloomberg survey called for a drop to 50.5. 

US$ Remains Under Pressure Following Yesterday's Joint Central Bank Action

The U.S. dollar continued its negative momentum from yesterday’s trading, falling against nearly all of its major counterparts as global equities ticked higher and some European nations held successful bond auctions.  The dollar has been under pressure since early yesterday morning when six central banks led by the Federal Reserve acted to lower the cost of borrowing dollars for banks to 50 basis points.  The so-called dollar swap lines will be extended six months to February 1, 2013.  The central banks also agreed to create temporary bilateral swap programs so that funding can be provided in any of the currencies “should market conditions so warrant.”  The U.S. dollar did gain against the Australian dollar as signs the Australian economy is slowing fueled speculation the central bank will cut interest rates.  Indeed, government data showed that building approvals declined and consumer spending slowed.  This morning’s economic docket showed that more Americans than forecast filed applications for unemployment benefits during the holiday-shortened week.  Claims climbed 6K to 402K.  Later, The Institute for Supply Management’s factory index, a gauge of U.S. manufacturing, is expected to climb to 51.8 in November from 50.8 in the prior month.  Market participants will then turn to tomorrow’s Non-farm Payrolls number that is expected to show employers added 125K workers last month after hiring 80K in October. 

The Euro gained against its American counterpart for the second straight day after Spain sold its maximum target of debt today and French yields dropped at an auction.  Spain sold 3.75 billion euros of bonds, the central bank said, meeting the maximum target.  The average yield on the five-year note was 5.544%, compared with 4.848% a month earlier.  France sold 1.57 billion euros of 10-year bonds at an average yield of 3.18%, down from 3.22%.  The Euro held its gains even after a report showed Europe’s manufacturing industry contracted in November as the region edged toward recession and global demand weakened.  The manufacturing gauge based on a survey of purchasing managers in the 17-nation dropped to 46.4 from 47.1 in October.  A reading below 50 indicates contraction. 

The Japanese yen was unchanged and remained in familiar ranges that it has traded in for the last month.  Japan sold 9.09 trillion yen in the foreign exchange market from October 28^th to November 218^th, the Ministry of Finance said on its website today.  The intervention was the biggest on a monthly basis, surpassing the previous sale of 4.51 trillion yen in August.  The yen surged to a postwar record on October 31^st, prompting Finance Minister Jun Azumi to order the central bank to sell the currency for a third time this year. 

The British pound was largely unchanged against the U.S. dollar overnight as rising equities and poor U.K. data pulled the currency pair in opposite directions.  U.K. manufacturing shrank at the fastest pace in two and a half years in November as both domestic and overseas demand weakened.  The gauge of factory output fell 47.6 from 47.8 in October, according to Markit Economics and the Chartered Institute of Purchasing and Supply.