Debt-wrangling contains dollar

The yen rose against the dollar, euro and currencies of other leading nations after a Japanese government minister hinted that intervention to restrain its damaging rise would likely have to wait until after a resolution for the U.S. debt-ceiling is found.

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U.S. Dollar – A nail-biting vote is expected in the House of Representatives as unified Democratic lawmakers gang-up against an amended Republican proposal that would cut spending by $917 billion over 10-years if passed. A midweek slump in stocks pointed to just how fractious investors have become as the August 2 deadline approaches. Beyond that date the U.S. is thought likely to be forced to default on its obligations until a solution can be found. A difference in approach dividing the parties is creating a bothersome impasse. House Speaker Boehner’s plan would spring the deficit issue again during the 2012 election year, while Democrats’ proposals would string the debate out to the following year. The dollar nevertheless received a boost from the latest weekly initial claims report Thursday, which revealed a sizeable drop of 24,000 claimants to 398,000 perhaps indicating a firming labor market in tough economic conditions. The dollar index rose by 0.4% to 74.40 ahead of the June reading of pending home sales due later on Thursday.

Euro – The euro is still rattled by further concerns that certain default within the Eurozone remains a matter of time after S&P warned that Greece will partially default once lawmakers usher through last week’s agreed second round of aid for the hamstrung nation. By imposing losses on bondholders, S&P says that the second bailout is tantamount to a default in its eyes. Also weighing on the single currency propelling it to $1.4258 against the dollar was a slide across a series of confidence indicators across the region. The EC Euro-area business climate index weakened to its least since June 2010. Confidence within the industrial sector dipped, while it fell by more than analysts had expected within the services sector. Economic confidence among business executives and consumers by more than predicted.

Japanese yen – The euro slumped against the Japanese yen to ¥110.87 while the yen also rose against the dollar to ¥77.65. A regional minister visited Economic Minister Kauru Yosano in Tokyo to address the impact of a rising yen on businesses in his prefecture. The minister later briefed Jiji Press on Mr. Yosano’s response indicating that yen strength was currently rooted in debt-wrangling in the U.S. As such any effort to depress the strengthening domestic currency would most likely wait until American lawmakers had reached agreement on raising the debt ceiling. The Bank of Japan has typically intervened when the yen displays what officials term as one-sided volatility.

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