The U.S. dollar fell from a one-week high against the Euro after the region’s leaders boosted a rescue fund and tightened budget rules to counter the debt crisis. The safe-haven greenback also came under pressure after Reuters reported that China’s central bank may use $300 billion of its reserves to invest in the U.S. and Europe. China’s central bank would create a new vehicle to improve return on reserves, citing an unidentified person familiar with the plan. There will be two funds, one targeting the U.S. and one Europe, Reuters said. Meanwhile, the U.S. economic docket is expected to show the Thomson Reuters/University of Michigan index of consumer sentiment climbed to 65.8 in December from 64.1 the prior month, according to a survey of economists. The greenback could remain under pressure throughout the day as European stocks rallied 1.0% and Standard & Poor’s futures climbed.
The Euro strengthened against the U.S. dollar as leaders holding all-night talks in Brussels added 200 billion euros to their crisis-fighting capacity and toughened anti-deficit rules. Details of the agreement are still sketchy, but it appears the accord is in line with most estimates. Leaders outlined a “fiscal compact” to prevent future debt runups, accelerated the start of a planned 500 billion euro rescue fund and dropped bondholder loss-sharing provisions. European Central Bank President Mario Draghi declared the results of the EU talks as a “very good outcome” a day after he damped expectations that such a deal would prompt the ECB to step up its bond-buying operations. Closer fiscal ties for the euro-zone is widely believed to be part of a long-term solution to the debt crisis, so progress has been made. While this week’s summit appears to have done enough to keep the European Monetary Union alive and the Euro from plunging, the crisis is still far from being solved. The economic docket showed the German exports fell in October and French industrial output stagnated, adding to signs that the euro region may slide into recession.
The Japanese yen held a familiar range against the U.S. dollar overnight. Japan’s economic recovery following two straight quarters of contraction and a record earthquake in March is threatened by slowing global growth and a yen rate that is near post-World War II highs against the U.S. dollar. The nation’s economy grew less than the government’s initial estimate last quarter as companies reduced investment on concern overseas demand is stalling. Gross domestic product increased at an annualized 5.6%, the Cabinet Office said today, compared with a preliminary figure of 6.0%.
The British pound strengthened against the U.S. dollar but remained in a tight range against the Euro overnight. Prime Minister David Cameron said Britain refused to sacrifice sovereignty to save the euro, remaining outside an agreement by European nations to tighten budget rules. Cameron broke ranks with French President Nicolas Sarkozy and German Chancellor Angela Merkel after he failed to secure safeguards that would have stopped European Union plans to police financial services in London. The U.K. and possibly Hungary, Sweden and the Czech Republic will remain outside the new rules. The negotiations today amounted to lost “sovereignty” for those who signed up to the plan, Cameron said.
