Friday, July 29, 2011

Moody's places Spain's Aa2 ratings on review for possible downgrade

Previous session overview
Major currency pairs are little changed Friday, while investors puzzle out whether to risk any major plays before the weekend, when U.S. politicians are likely to hash out a debt agreement.

The dollar fell in Asia Friday after the U.S. House cancelled a vote on Speaker John Boehner's debt ceiling plan, adding to speculation the risk of a sovereign downgrade is rising even if a last-minute deal is reached by a Tuesday deadline to avoid default.

The greenback dropped to a fresh more than four-month low against the yen at JPY77.48 after House Majority Whip Kevin McCarthy said the House would not vote as scheduled Thursday evening in D.C., as House Republicans were unable to gain enough support within their ranks to secure passage of the bill. 

At 0350 GMT, the dollar was at JPY77.52 from JPY77.65 Thursday in New York. The ICE Dollar Index was at 74.100 from 74.117. The euro was at USD1.434 from USD1.4330, and JPY111.18 from JPY111.29.

The Pound outperformed most other risk currencies finding support under USD1.6300 and EURGBP falling to GBP0.8750. CBI Realized Sales at -5 vs. 0 forecast UK economy struggling to gain traction.

The Australian dollar was weaker Friday as investors reacted to news of further delays in Washington hampering a successful resolution to the U.S. debt ceiling debate ahead of Tuesday's deadline. At 0600 GMT, the Australian dollar was at USD1.0952, down slightly from USD1.1037 late Thursday. Against the Japanese yen, the Australian dollar was at JPY84.89, down slightly from JPY85.81.
Market expectation
Dealers said the continued political discord in the U.S. may tarnish the dollar's long-time status as the safest place to park funds in turbulent times. The Swiss franc and the yen, currencies of countries that both have large current account surpluses, have benefited on this trend. 

The Bank of Japan is expected to keep interest rates at near-zero levels for the foreseeable future, which should decrease the appeal of holding the unit. 

The EUR/USD prints a fresh intraday low at USD1.4281 after Moody's places Spain's Aa2 ratings on review for possible downgrade; the move highlights the continued risk of debt woe contagion in the euro-zone, dealers say. Any breach of USD1.4250 could prompt further sell, bringing a fall below USD1.4100 into view, say dealers. But the pair is likely to remain vulnerable to sharp sways, as investors react to headlines on debt problems on both sides of the Atlantic.

European stocks are expected to start deep in negative territory Friday after negotiations on the U.S. debt ceiling hit another brick wall as U.S. politicians delayed their vote on a debt proposal by House of Representatives speaker John Boehner.