Euro falls broadly
The euro fell broadly on Monday after European Central Bank President Mario Draghi said the central bank is willing to flood the market with cheap loans and euro zone interest rates should remain at current or even lower levels for some time. Europe's common currency hit session lows against the dollar and yen after Draghi told the European Parliament that the central bank is ready to offer banks more long-term loans to keep money-market interest rates from rising to levels that could push inflation too low.
Copyright Reuters, 2013
Draghi's remarks extended earlier losses stemming from worries about how long it will take Angela Merkel to form a coalition government after her party's victory in Sunday's German election. "With euro at $1.35, the pressure on the ECB to be as dovish as possible is really accelerating," said Boris Schlossberg, managing director at BK Asset Management in New York.
"The unintended consequences of the Federal Reserve's no-taper move has come at the worst possible time when German manufacturing exports are beginning to slow. So I think monetary officials in Europe will do everything possible to try to dampen the rise in the euro." The euro was last down 0.2 percent at $1.3494, below chart resistance at last week's 7-1/2-month high of $1.3569, but well above its September 2 close, at $1.3190, according to Reuters data.
Against the yen, the euro fell 0.7 percent to 133.34 yen. The outcome of Germany's election drove initial weakness in the euro. Merkel's conservatives fell short of the votes needed to rule on their own and might have to convince leftist rivals to join them in government.
Data showing above-forecast euro zone private sector business activity this month gave the single currency only a slight lift. Putting pressure on the euro were numbers showing that German manufacturing growth unexpectedly slowed, according to Markit purchasing managers' index data. Therefore, Tuesday's German Ifo sentiment data is likely to be closely watched.
The Australian dollar was up 0.5 percent at US $0.9442 after data showing China's factory sector growth accelerated in September. The dollar, meanwhile, slumped for a second straight session against the yen as uncertainty about the Federal Reserve's policy stance continued in the aftermath of last week's policy meeting. William Dudley, president of the Federal Reserve Bank of New York, said the timeline that Fed Chairman Ben Bernanke articulated in June for scaling back the central bank's stimulus measures is "still very much intact."
In a strong defence of the Fed's shock move last week to keep buying bonds, New York Fed President William Dudley said fiscal uncertainties "loom very large" as Congress prepares to hash out a deal to avoid a government shutdown and raise the nation's debt ceiling. He also noted that Bernanke did not specify that the first reduction in bond buying would come at the Fed's September meeting.
A slew of other Fed officials are also slated to chime in throughout the week. "The fact is that Fed officials remain as data-dependent as ever; if we see big surprises out of US nonfarm payrolls data and/or CPI inflation reports, expect big dollar moves," said David Rodriguez, quantitative strategist at DailyFX in New York. "In the meantime, we think it's unlikely that the dollar breaks to fresh lows," he said.
There are a plethora of events in the coming weeks that have the potential to heavily sway market sentiment. The September nonfarm payrolls report is scheduled for release on October 4 and there is also a looming fight between Congress and the president over raising the amount of money the government is allowed to borrow. If Congress does not raise the debt ceiling by mid-October, the United States will not be able to pay its bills, leaving open the possibility the government might default on its debt.
The dollar was flat against a basket of currencies at 80.434, holding above a seven-month low of 80.060 set last week after the Fed kept the pace of its bond-buying stimulus unchanged. The dollar was last down 0.6 percent to 98.74 yen, according to Reuters data.