The dollar failed to build on its recent gains versus the euro on Tuesday, as talk of a Chinese rescue eased fears that Europe’s sovereign debt crisis will spiral out of hand.
Reports suggested that China is in talks to buy bonds after Italian borrowing costs skyrocketed to unsustainable levels.
Italian austerity plans must implemented with haste in order to prevent a wider economic crisis, a top European official said Tuesday after discussions with Italian Prime Minister Silvio Berlusconi.
“Rapid, effective and rigorous” implementation of budget measures are necessary, European Commission President Jose Manuel Barroso said.
German Chancellor Angela Merkel said in a radio interview that an ‘uncontrolled insolvency’ of Greece must be prevented to avoid a contagion to other Eurozone countries. Avoiding a disorderly default is the top priority, she said in an interview to Germany’s RBB Inforadio.
Meanwhile, one more hurdle was cleared for a second Greek bailout package after Belgian lawmakers approved the plan.
In economic news from the U.S., import prices declined 0.4 percent in August, according to the Labor Department.
The dollar eased a bit to $1.37 versus the euro, having touched a 7-month peak near $1.35 in the previous session. There was little movement versus the sterling, with the dollar holding near yesterday’s 7-month high of $1.5760.
U.K. annual inflation rose to 4.5 percent from 4.4 percent in July, with upward pressure coming mainly from clothing and footwear. The figure matched economists’ expectations. Inflation has now remained above the central bank target for 21 consecutive months.
Economies and people would suffer ‘avoidable and potentially lasting damage’, if adequate monetary stimulus as required by the economic outlook is not provided, Bank of England Monetary Policy Committee Member Adam Posen said Tuesday.
