Dollar was little changed against euro on Tuesday even though encouraging U.S. consumer confidence and Ben Bernanke’s nomination for a second term as Federal Reserve chief improved risk appetite. Furthermore, the White House said that U.S. unemployment would be higher and the budget deficit larger than earlier thought. The White House mid-session budget raised its prediction for the unemployment rate to 9.3% in 2009 and 9.8% in 2010. The budget also forecast U.S. GDP at –2.8% in 2008, 2.0% in 2010 and 3.8% in 2011.
The British pound continued to decline against the euro on Tuesday as interest rate and bond yield spreads moved against the pound and eur/gpb hit as high as 0.8766 in New York morning. Sterling also dropped against the dollar as the deteriorating U.K. budget position and the Bank of England’s aggressive quantitative easing program have weighed on the pound. Although cable rebounded to 1.6446 after the release of much better-than-expected U.S. consumer confidence data, the pair then slipped from there to 1.6331.
Euro fell to 1.4252 in European morning against the greenback although data showed that Germany GDP grew 0.3% in Q2. The single currency rebounded strongly to 1.4364 following the release of U.S. consumer confidence, with the index rising to 54.1 compared to economists’ forecast of 47.5. However, euro pared all of its intra-day gains in New York afternoon as solid demand for U.S. 2-year Treasury notes supported the dollar. In addition, the European Central Bank Executive Board member Juergen Stark said that unemployment in the eurozone would keep rising even though the economy had started to stabilise, as unemployment lags behind economic development.
Data to be released n Wednesday include Japan CSPI, export and import data, trade balance, German import price index, Ifo index, U.S. durable goods orders and new homes sales.