Euro Rises on Speculation Germany to Pass Vote on Bailout Fund
29/Sep/2011 • Currency Updates•
The dollar rose against the euro and other currencies yesterday as doubts about Europe’s ability to solve its debt crisis drew traders to safer bets. Discouraging news reports from Europe squelched an early rally and stoked demand for lower-risk bets. The dollar is seen as a safe investment mainly because it gives traders access to US Treasury’s. Traders still see Treasury’s as the world’s safest investment, despite a recent downgrade of the US government’s credit rating by Standard & Poor’s.
In other news, Gold declined for the fifth time in six sessions as the dollar’s rebound eroded demand for the metal as an alternative investment, and concerns that the global economy will falter. The greenback rose as much as 0.7 percent yesterday against a basket of currencies.
The euro rose against the dollar on expectations that the German parliament will approve the euro zone rescue fund’s new powers, though scepticism over the long-term stability of the euro zone were expected to check gains. German lawmakers are set to back an expansion of the euro-area rescue fund’s firepower as European officials turn to look at what next steps may be needed to stem the debt crisis. The plan before the lower house in Berlin today would allow the fund to buy bonds of distressed states and offer emergency loans to governments, raising Germany’s guarantees to 211 billion euros ($287 billion) from123 billion euros. The main opposition, Social Democrats and Greens, have said they will vote with Chancellor Angela Merkel’s government, assuring passage.
The Bank of England released its third quarter Secured Lending Survey Wednesday. The report is geared towards financial and credit conditions and there were direct inferences to monetary policy in this statement suggesting that there was need for short-term policy efforts to aid financial stability. Sterling inched up against the dollar on Wednesday on steady buying by sovereign investors, although speculation that the Bank of England will resort to more monetary easing is likely to cap gains. The UK’s proximity to the euro zone debt crisis and the fact that the U.S. dollar is the currency of choice for those seeking safety, means we could see sterling under pressure against the dollar.