The dollar wobbled against the euro on Tuesday, unable to sustain a mid-morning rally despite mounting concerns that Europe’s sovereign debt crisis is reaching a critical phase.
The International Monetary Fund introduced a new liquidity program that would provide “emergency assistance more effectively to the Fund’s global membership.”
However, the modest changes hinted at no participation from the European Central Bank, bursting the bubble of those expecting a more comprehensive plan.
Meanwhile, Spanish borrowing costs surged despite this weekend’s convincing victory for centre-right candidates. The yield on 3-month Spanish T-bills rose to 5.11 percent from 2.292 percent at an auction held on October 25.
The developments in Europe once again overshadowed key economic releases from the U.S., including a steep downward revision to third quarter GDP figures.
The dollar was stuck near $1.35 against the euro amid speculation the single currency was being repatriated as Europeans looked to hoard cash.
The buck leveled off near $1.5660 after hitting a 6-week high of $1.5580 versus the sterling.
Safe haven demand continued to support the yen, with the dollar unable to budge from near Y77. The buck hit a record low of Y75.55 last month.
Economic activity in the U.S. increased at a much slower than previously anticipated rate in the third quarter, according to a report released by the Commerce Department on Tuesday, although it still marked the fastest rate of growth of 2011.
The Commerce Department said that the pace of GDP growth in the third quarter was downwardly revised to 2.0 percent from the advance estimate of 2.5 percent.
The Federal Reserve debated whether to have specific targets for inflation and unemployment, before deciding it would not be advisable to make such a change under present circumstances, according to the minutes of its November rate-setting meeting.
“Many participants pointed to the merits of specifying an explicit longer-run inflation goal, but it was noted that such a step could be misperceived as placing greater weight on price stability than on maximum employment; consequently, some suggested that a numerical inflation goal would need to be set forth within a context that clearly underscored the Committee’s commitment to fostering both parts of its dual mandate,” the minutes say.