The dollar rose against the euro, approaching a one-year high, after
the Senate approved a $700 billion bank-rescue bill, bolstering
expectations the U.S. will act faster than Europe to address the
seizure in credit markets.
The U.S. currency also gained on increased demand for dollar funding
outside the nation, reflecting banks' reluctance to lend to each other.
The euro traded near a two-year low versus the yen on speculation
European Central Bank President Jean-Claude Trichet will say the
shortage of credit reduces the need for higher interest rates at a
meeting today.
The Senate voted 74-25 in favor of legislation that links the rescue
plan for financial companies to an increase in bank- deposit-insurance
limits and tax breaks, after the House of Representatives rejected an
earlier version of the bill. The House will likely take action on the
latest version on Oct. 3, said Brendan Daly, a spokesman for House
Speaker Nancy Pelosi.
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 funds available to other central banks this week to $620
billion.
Gains in the dollar may be limited as U.S. stock futures declined after
the Senate vote on speculation House legislators may reject the bill
for a second time when they vote tomorrow.
The euro may fall for a fourth day against the dollar before today's
meeting of the European Central Bank at which policy makers are
forecast to keep the main refinancing rate at 4.25 percent.
Traders raised bets the ECB will cut rates in coming months. The
implied yield on the Euribor futures contract expiring in March fell to
4.320 percent from 4.350 percent yesterday. Policy makers will keep the
benchmark rate unchanged today, according to all economists.
EUR/USD has tested area of an annual low then has returned to area $1,3900.
GBP/USD having established a session low on $1,7606, the pair has receded in area $1,7670.
USD/JPY having established a session high on Y106,28, the pair has fallen in area Y105,20.
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%.