The US dollar fell slightly amid risk as key US politicians in the debt negotiations indicated they could soon reach a deal to re-open the government and avert an immediate debt default. However, a deal still remains elusive and as deadline draws nearer, Monday’s optimism could unravel quickly.
The euro and other European currencies may find support after euro area finance chiefs, who met and will gather again, said that Ireland and Spain will soon be taken off emergency aid and maintained that Greece’s mounting bills will be paid. Further support may also come from key German ZEW sentiment index.
Sterling
The British pound has opened under slight pressure ahead of data that is likely to show UK inflation falling, making it easier for the Bank of England to maintain its dovish monetary policy stance. Britain’s annual consumer price inflation data for September is expected to slip from the previous month’s 2.7 per cent to 2.6 per cent, moving a little closer to the BoE’s two per cent target and making it less likely that higher price levels will “knock out” the central bank’s forward guidance pledge.
US dollar
The US dollar traded steadily against its major rivals after Senate Majority Leader Harry Reid suggested a debt deal could be announced. Reid’s remarks have boosted hopes that a final deal could be reached before the deadline, after which the US Treasury may have to default on its debt obligations. However, many doubts still remain given that any agreement would have to win support in the House of Representatives, where there will likely be more opposition from conservative Republicans who are demanding more spending cuts.
Euro
The euro rose slightly amid signs the region is taking strides to end years of fiscal trouble while investors remain confident that lawmakers in the US will come to agreement that would avert a debt crisis, lifting demand for higher yielding currencies. Analysts also expect sentiment data to show a continuation of positive economic confidence in Germany. ZEW’s monthly economic sentiment index for October is forecast to hold steady at 49.6. The index was as low as 31.5 in January. European finance ministers said that both Spain and Ireland will soon be taken off aid, while Greece’s mounting bills will be paid.