The House Passes The Debt Deal - 2.8.2011

US Dollar Asian stocks fell broadly, following European and US markets yesterday’s losses, after a report showed the slowest in two years growth in US manufacturing. Japanese Nikkei Average has lost about 1.3% by the end of the trading session. Markets remained under pressure even after the House of Representatives approved a 2.4 trillion-dollar debt-ceiling increase and government spending cuts yesterday night with the Senate scheduled to vote today, according to the Wall Street Journal. The House voted 269/161 for the plan negotiated on Sunday by the parties’ leaders and the President Barack Obama. The market sentiment was undermined after the US Institute for Supply Management’s factory index showed manufacturing activity expanded in July at the slowest pace in two years. The index fell to 50.9 last month from 55.3 in June, while economists predicted a drop to 54.5. The dollar strengthened yesterday against most of its rivals, except the Swiss franc. On the contrary, the pair USD/CHF touched a new record low 0.7730. The euro weakened yesterday against the greenback and fell below 1.42. Japanese Yen The yen appreciated to 76.30 against the dollar yesterday, approaching the record high 76.25 of March 17, the day before Group of Seven countries jointly intervened in currency markets to counter gains in Japan’s currency. The Japanese currency however erased gains in the aftermath amid speculations Japanese government will intervene again. The Finance Minister Yoshihiko Noda expressed his concerns and repeated that the currency is extremely overvalued and that he is closely watching the market. He said the yen’s value does not reflect “economic fundamentals at all.” It is obvious that Japanese officials are concerned that the strength of the national currency will hurt domestic companies, especially exporters, and will undermine economic recovery. Noda however did not comment on a possible intervention yesterday. But the Nikkei newspaper mentioned that the government is preparing steps to reverse the yen’s recent gains and the Bank of Japan may consider a 5 to 10 trillion-yen expansion of a 40 trillion yen asset-buying fund at its two-day meeting on August 5. Pair USD/JPY traded today somewhat higher at 77.18-77.82. Australian Dollar The Australian dollar extended its three-day losses in Asian trading hours today after the Reserve Bank of Australia held its benchmark interest rate unchanged at 4.75%, citing global uncertainty and expressing a less hawkish sentiment than it was expected. The currency fell from its record highs against the US counterpart after a government report showed building approvals unexpectedly fell in June. The Bureau of Statistics said home-building approvals dropped by 3.5% in June from a month earlier, while economists predicted a 3% gain. The approvals statistics looks even more dramatic in annual figures, as it declined by 15.5% from a year earlier. Pair AUD/USD dropped in Asian trading hours today to a week low 1.0900.