The dollar raced higher versus the euro on Monday, amid renewed risk aversion and lingering doubts that an expanded bailout fund can prevent a sovereign debt crisis in Europe.
European lenders will take a voluntary 50% writedown on Greek government debt, the lending capacity of the of European Financial Stability Facility fund will be increased, and the region’s banking system will be recapitalized with 106 billion euros.
However, the euro area debt crisis is not over, outgoing European Central Bank President Jean-Claude Trichet said in an interview with the German newspaper Bild am Sonntag.
China and Japan over the weekend refrained from making promises to buy more European bonds.
The Bank of Japan intervened to weaken the yen, a few days after the currency touched another record peak versus the dollar.
Reports quoted Japanese Finance Minister Jun Azumi as saying that the move was “unilateral.” Azumi has earlier promised strong action to counter the yen as it erased much of the exports gains, hurting firms’ profit margins.
The dollar jumped to Y79.50 versus the yen, but leveled off to Y78 later in the day. Last week the dollar hit a record low of 75.64.
The buck also gained on the euro, rising to $1.3910 by mid-day. The advance took the dollar away from a 7-week low of $1.4246.
On the other hand, the dollar set a fresh 7-week low of $1.6163 versus the sterling, and was stuck just below parity versus its Canadian counterpart.
In economic news, Eurozone annual inflation remained stable at a 35-month high in October, flash estimate from the Eurostat showed Monday.
Annual inflation stayed at 3 percent, while economists’ were expecting it to fall to 2.9 percent.
The Institute for Supply Management – Chicago released a report on Monday showing a continued expansion in regional manufacturing activity in the month of October, but the pace of growth slowed compared to the previous month.
The ISM – Chicago said its business barometer dropped to 58.4 in October from 60.4 in September, although a reading above 50 indicates continued growth. Economists had been expecting the index to drop to a reading of 58.0.
The Federal Reserve begins a two-day policy making meeting on Tuesday.
We have experienced a few excellent Fx positions over the last four week period or so going long on EUR/GBP. The USD/JPY Fx positions have already been our life line lately. Will the Fx gods continue to bring all of us good trades.