Earlier hopes for a rebound for the dollar in light of all round
agreement to raise the debt-ceiling have fallen on rocky grounds as
investors think back to Friday's growth report from the U.S. While
the debt-gridlock may have been broken dealers are busy
disentangling the mess leading up to Friday's culmination of fears
and recognizing that the risk-aversion tone happened with good
reason. The short-covering rally for the dollar appears to have run
its course in Asian and European time-zones while growing risk
appetite as a result is being confined to an equity market
- President Obama and congressional leaders agreed to raise the
debt-ceiling by $2.1 trillion and cut the deficit by $2.5 trillion
over a decade in the process. The relief was swift starting in
Asian markets where stocks jumped, the dollar rebounded and
treasury prices pared gains. And the clue is in the final comment
there - the 10-year yield rose to 2.83%, which still remains in
below the recent lowest closing low for 2011 following data last
week that showed the U.S. economy is not growing as fast as was
believed to be the case. There may be relief from the deficit
debacle, but the economic picture morphed last week presenting
fresh challenges ahead for the dollar. Its index is once again
under pressure to start the week trading softer by 0.2% at 73.68.
Later on Monday the dollar faces the hurdle of the July measure of
the ISM manufacturing reading expected to have eased marginally
from 55.3 to 54.5.
- The euro earlier responded to news of the proposed debt agreement
with a decline to $1.4377 but more recently rose to a session high
in New York at $1.4454. Although there are few willing to predict a
further monetary tightening from the ECB when it reconvenes at its
August session on Thursday the single currency maintains a yield
edge over and above the dollar, at least when investors take an eye
off concerns over the region's debt concerns. The 17-member
Eurozone's PMI came in at an unchanged reading of 50.4 for July
while that of Germany, the zone's biggest member, took a minor
back-step to 52.0 from 52.1 in June. The Eurozone's unemployment
rate was maintained at 9.9% according to a June report released on
Monday. The euro rose to ¥110.85 against the Japanese yen.
- The health of Britain's manufacturing sector didn't fare as well
as that of other nations. The July PMI slipped back into
contractionary ground at 49.1 and causing the pound to lose an
early advantage over the dollar. The pound slid from a session high
at $1.6472 to as low as $1.6377. The government's efforts to solve
its own budgetary problems haven't gone unnoticed and the tight
fiscal stance combined with low wage growth and a sticky inflation
problem have caused a headache for retailers. The euro also gained
ground against the British pound to exactly 88 pence.
- Investors must wait until Friday for Canada's only piece of
economic evidence this week but the relief rally for over a U.S.
debt-extension has provided a fillip on Monday. The Canadian unit
suffered at the hands of a reported slump in U.S. growth late last
week, but the risk-on tone on Monday has seen the so-called loonie
jump from $1.0545 U.S. cents to $1.0587 cents. Friday sees delivery
of the July employment report from Montreal.
- Both the yen and the Swiss franc lost out overnight to breaking
news of a deal on the debt-ceiling but have rebounded in early New
York trade. The Swiss franc has actually moved to a fresh all-time
high after it weakened earlier. The U.S. agreement amongst
lawmakers potentially removes one of the challenges facing Japanese
authorities concerned by strong demand for the yen. Investors
flocked towards both it and the Swiss franc for fear of a U.S.
downgrade in the event that America's two-parties failed to agree
before a looming deadline. However, the dollar's tepid rally soon
ran out of steam and left behind a peak against the yen at ¥78.00
before falling to ¥76.87.
- The Aussie continued its ascent after Friday's weakness and was
propelled higher by a prospective accord in the U.S. The Aussie
rallied to a session peak at $1.1064 although failed to puncture
recently formed resistance on account of a slide in the AiG
performance of manufacturing index, which fell from expansion
territory firmly into the red at 43.4. Manufacturing is a
relatively small component of the Australian economy and is swamped
by expansion across the mining and minerals sector.