The ailing dollar fell on Wednesday as sliding U.S. Treasury yields and below-forecast U.S. data fuelled expectations of further monetary easing. Mounting speculation the Federal Reserve could embark on a second round of quantitative easing, which would be negative for the dollar, drove the greenback to a five-month low against the euro and a two-year trough against the Australian dollar. "The market is jumping on QE expectations as it feels the U.S. data will force the Fed to do something, and I think that will be the case," said Manuel Oliveri, currency strategist at UBS in Zurich.And here's something ladies and gentlemen, children of all ages, that we've been waiting for ages to finally come. Apparently not yet pleased with the dollar sliding to goodness knows where, the House of Representatives look set to pass the Currency Reform for Fair Trade Act H.R. 2378 later today. (More in a recent post on this legislation.) This after years and years of legislators threatening to bash China but passing no bills. For something to become law, of course, the Senate must also pass its own and the president must then sign the reconciled version (House & Senate) of the bill into effect. From Reuters:
Analysts said the dollar could face further losses as a selling trend was taking hold, while the euro would continue rising after becoming resilient to economic and banking problems facing some countries on the euro zone periphery. "The safe bet is to keep selling the dollar, especially given reasonably supportive data from the euro," said Peter Frank, currency analyst at Societe Generale.
Data on Wednesday showed euro zone economic sentiment unexpectedly rose in September. Frank said the euro had developed a thick skin to banking and economic problems faced by Ireland, which have flared in past weeks. Unless problems arose in a major country, such as Spain, the future of the euro zone was unlikely to be threatened.
The House of Representatives is poised on Wednesday to pass legislation to pressure China to let its yuan currency rise more quickly, fanning the flames of a long-running dispute over trade and jobs. The House is expected to approve, with bipartisan support, a bill to treat China's exchange rate as a subsidy, opening the door to additional duties on Chinese goods entering the United States, some of which are already subject to special levies. But the measure must gain Senate approval and be signed into law by President Barack Obama -- by no means a sure bet.Reuters also has a factbox outlining the bill's key details. Some excitement, finally. "China Currency Coalition" Obama, would you dare veto the will of the American people? It seems the general hopelessness of America and the need to garner votes ahead of November may finally tip the balance in the favour of "action." Certainly, branding China's currency intervention an actionable subsidy would open the gate to a world of conflict as all sorts of interests petition the US government for remedies against China. While the Senate will not take up its counterpart bill S. 3134 until after the midterm elections and revenues gained from applying duties probably won't amount to much, there's no denying its potential to sour US-China ties. If such legislation becomes law, expect China to take the US to the WTO--guaranteed--for starters.
U.S. lawmakers have long brandished the sword of trade retaliation for what they see as China's deliberate policy of undervaluing the yuan, which they say gives its exports an unfair edge in global markets, but have never sent the president any legislation to be signed into law.
Obama and Chinese Premier Wen Jiabao discussed China's currency and huge trade surplus with the United States during a meeting on the sidelines of the U.N. General Assembly last week, aides said, but declined to discuss the sensitive issues with reporters after the meeting.
Ahead of the vote, China's central bank reaffirmed its long standing pledge to increase the flexibility of the yuan and improve the way it manages the exchange rate. "We will further improve the yuan's exchange rate formation mechanism, let market supply and demand play a key role in its adjustment with reference to a basket of currencies and increase exchange rate flexibility," it said in a summary of the third-quarter meeting of its monetary policy committee.
The House move, little more than a month before U.S. congressional elections, is certain to further roil relations with Beijing, which resents the criticism and says it is its decision alone how fast to proceed with currency reforms.