Monday, August 1, 2011

U.S. President Barack Obama confirmed a deal

Previous session overview

A framework agreement in the long-running debt ceiling battle in Washington sent the dollar up briefly against the yen Monday morning in Asia, but the greenback's gains faded on continued concern over a possible U.S. sovereign downgrade and further economic softening.

The dollar's failure to hold its gains Monday came also as investors had already priced in expectations for default to be averted.

At 0450 GMT, the dollar was at JPY77.55, up from JPY76.78 late Friday in New York, but down from the high it hit at JPY78.05 after the deal was announced. 

The euro was at JPY111.58 compared with JPY110.05, and at USD1.4389 from USD1.4391.

The ICE Dollar Index was at 73.855 from 73.750. 

The Australian dollar edged higher Monday as U.S. President Barack Obama confirmed a deal to raise the debt ceiling is in place, easing concerns of a possible credit downgrade or default. Along with leading to a rallying currency, the news sent bond prices in Australia lower across the curve. 

At 0550 GMT, the Australian dollar was at USD1.1050, up from USD1.0952 late Friday. Against the Japanese yen, the Australian dollar was at JPY85.765, up from JPY84.89.

Market expectation

Analysts say they expect the U.S. to avoid default despite both Democratic and Republican leaders describing the agreement as less than ideal. The framework calls for increasing the debt ceiling by at least USD2.1 trillion through the end of 2012 and for USD2.4 trillion in deficit reduction measures. 

Remaining uncertainties in the exact parameters, with House Republicans and the White House releasing different figures for the expected savings, are tempering dollar gains, analysts said. That the deal came only shortly before a Tuesday deadline also keeps ratings concerns in play, they said. 

Some analysts said the Japanese finance ministry could yet step in to sell the yen, even if the U.S. deal had diminished the chances of immediate action.

The USDSGD is likely to hold above the SGD1.2000 level for the rest of the Asian session despite strong appetite for Asian currencies, traders say. People are getting wary of the central bank coming in not just in Singapore but with other regional currencies. They expect if the pair does break down through SGD1.2000, the next support will be around SGD1.1965 with resistance at SGD1.2025. In the local session, the pair has hit a low of SGD1.2002, not far from its record SGD1.1992 low hit last week.

European stocks are expected to open sharply higher Monday, as market participants welcome a deal to raise the U.S. debt ceiling, alleviating worries about a potential credit downgrade or default.