Dollar Declines As Europe Moves To Stem Debt Crisis
The dollar came under modest pressure on Tuesday, giving back more of its strong recent gains amid renewed hopes that Europe can manage its sovereign debt crisis.
Reports said officials will likely set up a special purpose vehicle, drawing funds from the European Financial Stability Facility and by selling bonds to investors. The SPV would then buy sovereign debt of peripheral nations.
Markets now expect financial ministers to lever up the European Financial Stability Facility to 2 trillion euros as a firewall against a crisis that may be brought on by a Greek default.
For its part, Greece “will fight its way back to growth and prosperity,” Prime Minister George Papandreou told German lawmakers in a speech this morning. Greek parliament later approved an unpopular property tax.
Meanwhile, policy makers of the ECB never said that they were starting a series of interest rate hikes, Executive Board member Lorenzo Bini Smaghi told Markit Magazine in an interview.
The dollar dropped to a weekly low of $1.3640 versus the euro and to $1.57 versus the sterling. Afternoon gains took the dollar toward Y77 against the yen as risk appetite picked up.
In economic news from the U.S., the Conference Board released a report on Tuesday showing a modest increase by its consumer confidence index in September, although the index increased by less than expected.
The Conference Board said its consumer confidence index edged up to 45.4 in September from a revised 45.2 in August. Economists had been expecting the index to climb to 46.5 from the 44.5 originally reported for the previous month.
