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.
Aussie dollar – The Aussie remained above $1.1000 using the move to record-high territory as support for a second session. The local dollar had no domestic data to fuel a further rally but interest rate markets have recently shrugged off expectations of a reduction in the short-term lending rate set by the central bank on account of an increase in consumer prices during the second quarter. The Aussie nevertheless dipped to ¥85.73.
Canadian dollar – U.S. debt negotiations boosted the greenback midweek and pulling the U.S. unit back from the brink of its weakest level against the Canadian dollar since 2008. A resurgence of risk appetite on Thursday has helped buoy the so-called loonie lifting it to $1.0525 U.S. cents. The Canadian dollar continues to find support as optimists believe that behind the debt-clouded horizon stands the promise of a resumption of monetary tightening at the Bank of Canada. The dollar is firmer this morning ahead of a report due Friday likely to show a resumption of monthly growth during May following an April-time contraction.
British pound – The pound is unchanged despite a volatile session during which it jumped by more than a half-cent before falling by the same amount around its midweek close of $1.6328. The pound rose against the euro is a better European alternative and trades at 87.60 pence per euro. The pound was jolted by a slide in fortunes at retailers in June as reported by the CBI. Sales slumped to an index of negative five from a previous negative two as crimped consumers bought less groceries and home improvement items. The CBI noted a rapid drop in durable goods sold.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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