Dollar Jumps on Debt Concerns - 16.11.2011

US Dollar Asian stocks remain under pressure – Japanese Nikkei dropped by 0.9% by the end of the session, despite the major US stock indices managed to recover yesterday – S&P 500 gained 0.5%. Positive news for the US markets came from retail sales data. The sales in the United States advanced in October more than economists initially estimated, adding to signs the world's largest economy may accelerate in the fourth quarter. The measure rose by 0.5% following a 1.1% advance in September, in comparison with a 0.3% growth projection. Nevertheless investors remain cautious about the spreading European debt crisis as borrowing costs spreads in the euro area are still increasing. The dollar in its turn went on strengthening, accelerating this morning a two-day rally against its major counterparts, except the Japanese yen. The dollar index jumped from yesterday’s 77.64 to 78.29. Euro The euro failed to show a sustainable recovery on political changes in some of the euro area nations and fell below the latest local minimum (1.3483) against the greenback. The single currency is loosing ground for a third consecutive day as the borrowing costs of the most indebted region’s nations continue to rise. Italian bond’s yields exceeded yesterday the 7% threshold that spurred Greece, Ireland and Portugal to seek bailouts, with the country’s 10-year yield touching 7.1%. Spain as well is preparing to sell 10-year bonds tomorrow, after investors demanded higher return in a short-term debt auction yesterday. Nevertheless Italian Prime Minister Mario Monti, before announcing the new government today, said that he is “convinced” that Italy could overcome the crisis. The euro dropped from 1.3640 to 1.3495 dollars yesterday and slid to 1.3440 by the end of the Asian trading session today. Japanese Yen The yen remains one of the best performers of the week. The Japanese currency is strengthening against its growth-related counterparts, while the Bank of Japan kept its monetary policy unchanged and revised its economic forecasts. According to the bank’s statement, it will encourage the target “overnight rate to remain at around 0%-0.1%”. As for the outlook, the bank expects the economy to “face an adverse effect from the slowdown in overseas economies and the appreciation of the yen”. In the third quarter the third world largest economy advanced by 6% in annual figures, but the expansion was mainly driven by recovering exports after the March earthquake. The US dollar is depreciating against the yen as well – by the end of Asian trading hours the pair fell below 77.00.