Wednesday, July 20, 2011

U.S. President Barack Obama USD3.7 Trillion Deficit-Reduction Plan

Previous session overview
The dollar and the euro held steady against the yen in Asia on Wednesday as progress in the debate over raising the U.S. debt ceiling appeared to reduce the risk of any U.S. credit rating downgrade, supporting risk sentiment. 

Solid U.S. housing figures and some strong earnings results Tuesday also continued to support riskier assets, market participants said. 

U.S. President Barack Obama on Tuesday backed a USD3.7 trillion deficit-reduction plan as "a very significant step" after it gained fresh momentum from a bipartisan group in the Senate. Obama cited general progress in the debt-ceiling and deficit-reduction talks and asked Congress to begin crafting a final plan Wednesday. 

The dollar was at JPY79.14 as of 0450 GMT from JPY79.17 late Tuesday in New York, while the euro was at JPY112.03 from JPY112.06. The euro was also at USD1.4155 from USD1.4150. The U.K. pound was at USD1.6126 from USD1.6124. The dollar was at CHF0.8238 from CHF0.8240. 

The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 75.143 from 75.167.

The GBP is vulnerable to renewed euro zone debt worries, particularly against the dollar and currencies such as the yen and Swiss franc, due to concerns about the health of the UK banking sector and Britain's close trade links with Europe.

The Australian dollar was higher late Wednesday after U.S. President Barack Obama said overnight progress was being made on resolving an impasse in Washington over the U.S. debt ceiling. At 0600 GMT, the Australian dollar was at USD1.0713, up from USD1.0615 late Tuesday. Against the Japanese yen, the Australian dollar was at JPY84.70, up from JPY83.875.
Market expectation
Still, uncertainty over European sovereign debt woes continued to weigh. Market participants are focusing on a euro-zone emergency summit meeting Thursday. Senior finance ministry officials and aides to the heads of government will meet Wednesday in Brussels to try to hammer out a deal. French President Nicolas Sarkozy is set to travel to Berlin on Wednesday to meet German Chancellor Angela Merkel to find a compromise solution before the summit.

Markets are awaiting Wednesday's release of the Bank of England's July meeting minutes which are expected to add to the view that interest rates will stay chained at record lows, which could weaken sterling.

European stocks are expected to open higher Wednesday, following the strong tone seen on Wall Street Tuesday on positive corporate news and after some progress in the debate about raising the U.S. debt ceiling.