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Dollar Gains Against Majors - 9.9.2011

US Dollar The dollar strengthened against its major counterparts yesterday. President Barack Obama proposed yesterday a 447 billon-dollar program aimed at stimulating economic growth, while national discontent with the current situation threatens the political standing of the administration. “The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,” Obama told the Congress. The plan includes infrastructure spending, subsidies to local authorities to stem teacher layoffs and cutting in half the payroll taxes paid by workers and small-business owners. Tax cuts account for more than half the dollar value of the stimulus. The president concluded that “Ultimately, our recovery will be driven not by Washington, but by our businesses and our workers.” Supporting the need for further jobs stimuli, the number of initial jobless claims increased last week, showing that the labor market is still facing difficulties as job growth stalled last month and the unemployment rate rose above 9%. Claims for unemployment benefits rose by 2000, climbing to 414000, a report showed yesterday. A couple of hours before Obama’s speech, the Federal Reserve Chairman Ben Bernanke said policy makers will discuss at their next meeting this month the tools they could use “to promote a stronger economic recovery in the context of price stability.” He also mentioned that “The weakness of the housing sector and continued financial volatility are two key reasons for the frustratingly slow pace of the recovery.” The dollar index, which tracks the US unit against a basket of six currencies, rose to 76.31 from 75.46 on Wednesday. Euro The euro dropped to a two-month low against the dollar yesterday after the European Central Bank President Jean-Claude Trichet said that the threats to the euro region have worsened and inflation risks have eased, giving officials the option to take further measures in case the debt crisis gets worse. The ECB President indicated that the economy faces “particularly high uncertainty and intensified downside risks” after the ECB left its benchmark rate at 1.5%. The monetary policy of the central bank therefore remains “accommodative,” and the bank is ready to inject more cash in the market if financial conditions worsen in the 17-member euro region. At the same time the ECB cut both its 2011 and 2012 growth forecasts to 1.6% from 1.9% and to 1.3% from 1.7% respectively. Inflation expectations meanwhile were left unchanged at 2.6% for 2011 and 1.7% for next year, with the target level at 2%. A preliminary report today showed however that German CPI accelerated in August to 2.4% from 2.3% in annual figures. In such conditions investors decreased their bets of further possible interest-rate increases as the ECB will probably act in the opposite direction, boosting stimulus measures, increasing the money supply and adding more downward pressure on the single currency. The euro fell yesterday from 1.4095 to 1.3872 against the dollar. Japanese Yen The yen weakened yesterday against the greenback as well. Early in the morning reports revealed that the Japan’s economy contracted more than the government initially estimated in the second quarter due to a decreasing capital spending and a relatively strong national currency’s exchange rate. The GDP fell by 2.1% from a year earlier, in line with economists’ estimations. Report also showed that capital spending decreased by 0.9% in the second quarter from the previous three months, while the government initially estimated a 0.2% increase, as machine orders declined in July by 8.2% after a 7.7% gain in June. Prime Minister Yoshihiko Noda is developing a third package to rebuild the economy after the March earthquake. He has also said the government is weighing measures to help companies deal with the rising yen. Pair USD/JPY rose yesterday to 77.59, approaching very closely to a one-month high 77.72.
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