Dollar Recovering Versus Euro On Tuesday

13:04, 18th September 2012

(RTTNews) - The dollar is rebounding from its recent weakness against the Euro on Tuesday, but is little changed in comparison to its other major competitors. Much like the previous trading day, news has been light today. Investors have begun to shift their focus back to the debt situation in Spain, while homebuilder confidence in the U.S. continued to increase.

European Central Bank Governing Council member Luc Coene said on Monday that the central bank has a number of options to ease policy, including cutting deposit rate below zero and offering more cheap loans to banks.

Negative rate on deposits at the ECB is one of the possibilities, reports said citing his remarks during a seminar in London. Coene, who heads the Belgian central bank, said extending the long-term refinancing operations (LTROs) is another option before the ECB to ease monetary policy, if required.

Coene also warned that rising bond yields may force Spain to place a bailout request. "If the markets see that Spain is not going to" ask for financial assistance, "it will not be long before spreads will rise again and Spain will be forced to come back" on its decision to request bailout and submit to ECB conditions, Coene said.

Spain's borrowing costs declined on Tuesday in the first debt auction since the European Central Bank announced plans to buy peripheral bonds earlier this month. The country is set to face a tougher challenge on Thursday, when it auctions a benchmark 10-year bond and a new three-year bond.

Despite the favorable auction results, Spanish bond yields remain high, given the lingering uncertainty as to whether the country would seek a bailout, paving way for the ECB to keep the Spanish yields lower by buying the country's bonds.

The European Central Bank will assume the role of a banking supervisor only if it is fully equipped, ECB Governing Council member Ewald Nowotny reportedly said Monday. He said it is ambitious to expect the ECB to take on the responsibility of overseeing major banks by mid-2013.

The dollar has rebounded from yesterday's 4-month low of $1.3171 versus the Euro to around $1.3040 on Tuesday.

German economic sentiment improved in September after easing for four straight months, as the European Central Bank's bond purchase plan calmed analysts' fears of a looming break-up of the region, results of a closely watched survey revealed Tuesday.

The ZEW Indicator of Economic Sentiment rose by a better-than-expected 7.3 points to -18.2, data from the Mannheim-based Centre for European Economic Research showed. The score was forecast to rise to -20 in September.

The greenback has remained relatively flat in comparison to the pound sterling Tuesday, around the $1.6240 level, which is a slight improvement from yesterday's low of $1.6272.

U.K. inflation slowed marginally in August despite an increase in fuel prices, which may provide room for more monetary policy easing. Nonetheless, inflation remains above the 2 percent target. Annual inflation eased to 2.5 percent in August, in line with expectations, from 2.6 percent in July, data from the Office for National Statistics revealed Tuesday.

The Policy Board of the Japanese central bank is expected to announce its policy stance at the end of a two-day meeting on Wednesday. Speculation is rife that the board will announce a fresh round of stimulus measures to revive the economy as the Eurozone debt crisis showed no signs of abating.

The buck has been moving in a range around the Y78.600 level versus the Japanese Yen Tuesday, which is down from yesterday's high of Y78.921.

Homebuilder confidence in the U.S. increased for the fifth consecutive month in September, according to a report released by the National Association of Home Builders on Tuesday, with the index of homebuilder confidence rising to its highest level in over six years.

The report showed that the NAHB/Wells Fargo Housing Market Index rose to 40 in September from 37 in August. Economists had been expecting the index to show a more modest increase to a reading of 38.

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