The dollar advanced against the euro for a third day as demand for
funding in the U.S. currency increased, reflecting banks' reluctance to
lend to each other amid a global credit crunch.
Foreign banks are paying near the highest premiums in at least a decade
to borrow in dollars in the swaps market even after the Federal Reserve
increased the amount of funds available to other central banks this
week to $620 billion from $330 billion. The U.S. Senate set a vote for
tonight on a $700 billion financial-rescue plan.
Britain's pound declined to the lowest level against the dollar in
almost three weeks after an industry report showed U.K. manufacturing
contracted last month at its fastest pace in 16 years. Sterling fell as
much as 0.8 percent to $1.7655, the lowest level since Sept. 12.
Against the euro, the pound decreased 0.2 percent to 79.29 pence.
The London interbank offered rate, or Libor, that banks charge each
other for one-month dollar loans rose to the highest level since
January, the British Bankers' Association said. The overnight dollar
Libor slid from yesterday's record of 6.88 percent after funding
constraints tied to the end of the third quarter passed. The Libor-OIS
spread, a gauge of cash scarcity, held near a record.
The dollar fell against the yen as the Institute for Supply
Management's factory index dropped last month to 43.5, the lowest since
October 2001, from 49.9 in August, the Tempe, Arizona-based group
reported today. A reading of 50 is the dividing line between expansion
and contraction.
The U.S. Senate agreed to vote on the rescue legislation along with the
measure temporarily raising the limit on federal deposit insurance to
$250,000 from $100,000. That increase was proposed by Republicans
critical of the plan authorizing Treasury Secretary Henry Paulson to
buy troubled debt from lenders, which was rejected by the House on
Sept. 29.
The euro's drop versus the dollar came a day before a meeting of the
European Central Bank at which policy makers led by Jean-Claude Trichet
are forecast to keep the main refinancing rate at 4.25 percent.
EUR/USD having corrected up to a mark $1,4173 after movement on
Tuesday, the pair has decreased and has established session low on
$1,3973. The rate has finished session of environment in the field of
$1,4000.
GBP/USD has finished the tenders in the field of $1,7700 after has established a session low on $1,7631.
USD/JPY after unsuccessful testing a maximum of Tuesday the pair has decreased in area Y105,30. Later the rate could slightly recover.
European data for Wednesday starts at 0700GMT with the September
Nationwide House Price data, which is expected to highlight the
continuing decline in the UK housing market. At 0900GMT of Eurozone
industrial PPI data for August, which is expected to come in at -0.8%
m/m, 8.5% y/y.
The main event for Europe on Wednesday is clearly the ECB interest rate
decision, which is due at 1145GMT . The rate decision will be explained
in the usual post-meeting press conference, which is chaired by ECB
President Jean-Claude Trichet from 1230GMT.
US data also starts at 1230GMT, when US jobless claims are
expected to fall 18,000 to 475,000 for the September 27 week. At
1400GMT, Factory new orders are expected to fall 3.0% in August, as
durable goods new orders were already reported down 4.5%.