The Dollar Fell Slightly Following Yesterday’s Broad Gains | IFCM
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The Dollar Fell Slightly Following Yesterday’s Broad Gains - 7.9.2011

US Dollar The dollar strengthened yesterday against all its counterparts. Yesterday reports showed that service industries unexpectedly expanded in August at a faster pace than economists expected, easing concern the biggest part of the US economy was stagnating. The Institute for Supply Management’s non-manufacturing index increased to 53.3 last month from 52.7 in July. Today the Federal Reserve will release its Beige Book survey of the US economic conditions, while President Barack Obama will speak to the Congress tomorrow about his plan to reduce unemployment. Obama is set to explain his plans in a September 8 address to Congress as unemployment remains at 9.1% more than two years after the recession’s official end. Chicago Fed President Charles Evans is scheduled to speak in London today, while Chairman Ben Bernanke will speak on the economic outlook tomorrow in Minneapolis. All major US stock indices declined slightly yesterday, but Treasury 10-year notes also fell for the first time in a week, sending yields up above 2%. Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the US economy didn’t need additional stimulus in August and probably won’t require more easing this month. Asked about a possible recession, the regional Fed chief said “it’s my expectation we will not have a recession. I still see sufficient sources of strength in the economy.” Kocherlakota added that the unwinding of temporary factors, like supply chain disruptions from the Japanese earthquakes and tsunami and the spike in energy prices, would provide a “little impetus” to growth. The dollar index, which tracks the greenback against a set of 6 currencies rose yesterday to almost a two-month high at 76. Euro The euro remains under pressure against the US dollar. Yesterday the single currency fell to almost a two-month low – 1.3972, but managed to recover in Asian trading hours today above 1.40. Against the Swiss franc, however the euro rallied significantly, as the Swiss National Bank set the minimum level for the pair EUR/CHF at 1.2 francs per euro. European Central Bank made it clear that the Swiss were acting alone, without coordination from Frankfurt. In a statement, the ECB said it was “informed” by the Swiss and “takes note” of the decision, “which has been taken by the Swiss National Bank under its responsibility.” Investors are still concerned about the Greek bailout and enormous debt levels in several European economies. Italian government, for instance, issued yesterday a statement outlining measures for its austerity plan, which includes an increase in taxes, a rise in the retirement age, and the introduction of additional taxes high net-worth people, the Wall Street Journal informed. Australian Dollar The Aussie strengthened today against the greenback, curbing yesterday’s losses as today’s GDP report showed that compared with a year earlier the economy expanded by 1.4% in the second quarter, while economists predicted a 0.7% expansion. Household spending rose by 1% in the second quarter, machinery and equipment increased by 4.9%. Despite exports gained 2.6%, imports advanced by 4.3% in the second quarter, curbing contribution of the net exports to the GDP. The Reserve Bank of Australia Governor Glenn Stevens signaled today a willingness to keep rates on hold while the nation’s consumers retrench and global financial markets create instability for the “foreseeable future.” “Periods of sudden increases in anxiety within international financial markets are moments when, if at all possible, it is good to be in a position to be able to maintain steady settings,” he said. Stevens held rates at 4.75 percent yesterday for the ninth straight meeting. The Australian dollar rose today from 1.0483 to 1.0609 against the greenback. Japanese Yen The yen fell yesterday against the dollar amid speculation Japan will follow Switzerland in taking steps to curb currency’s strengthening. This morning however the yen rose again after the Bank of Japan kept its key interest rate between 0% and 0.1% and left the amount of its lending and asset-purchase programs unchanged after adding 10 trillion yen of stimulus last month. Pair USD/JPY rose yesterday to a one-month high – 77.72 and fell this morning back toward 77.00.
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