In the early European session on Tuesday, the U.S. dollar and the Japanese yen climbed against their major counterparts following the speech of European Central Bank President Mario Draghi in the European Parliament.
Speaking before the Committee on Economic and Monetary Affairs, Draghi noted that European economy continues to face challenges and fiscal consolidation is likely to affect short term growth.
Draghi also added that risk to economic outlook are to the downside, and inflation will drop below 2% in the next year.
The ECB head welcomed European Union's single Supervisory Mechanism and opened doors of banking union to non-Euro members who want to opt in.
Adding to concerns, the International Monetary Fund downgraded global growth estimate for 2012 and 2013 saying prospects have deteriorated further and risks increased.
The lender trimmed world output growth outlook for this year to 3.3 percent from 3.5 percent estimated earlier in July. For next year, the IMF sees a sluggish 3.6 percent growth, down from the prior projection of 3.9 percent.
In its latest World Economic Outlook, unveiled in Tokyo ahead of the IMF-World Bank 2012 Annual Meetings, the IMF said prospects could improve if clouds over euro area, U.S. "fiscal cliff" are lifted. It said risks for a serious global slowdown are alarmingly high.
Eurozone is expected to shrink 0.4 percent this year and to grow 0.2 percent in 2013. In the United States, growth will average 2.2 percent this year and then slow marginally to 2.1 percent in 2013.
Japan saw a current account surplus of 454.7 billion yen in August, up 4.2 percent on year, the Ministry of Finance said early in the day.
That beat forecasts for a surplus of 421.1 billion yen (down 3.7 percent) but declined from the surplus of 625.4 billion (-40.6 percent) yen in July.
The trade balance reflected a deficit of 644.5 billion yen, missing forecasts for a shortfall of 628.6 billion yen after showing a 373.6 billion yen deficit in the previous month.
Exports were down 5.3 percent on year in August, while imports dipped 5.4 percent.
The greenback advanced to 5-day highs of 0.9387 against the Swiss franc and 1.2908 against the euro and the greenback is likely to break next upside target levels at 0.945 and 1.285, respectively. The greenback closed Monday's trading at 1.2969 against the euro and 0.9334 against the franc.
Against the pound, the greenback firmed to 1.6005, its highest level since September 11. On the upside, 1.595 is seen as the next target level for the dollar. The pair closed deals at 1.6028 Monday.
The greenback advanced to as high as 0.9773 against the Canadian dollar and 1.0198 against the Australian dollar, reversing from previous session's multi-day lows of 0.9748 and 1.0249, respectively. At yesterday's close, the greenback was quoted at 0.9772 against the loonie and 1.0192 against the aussie.
In economic news from Australia, confidence among business improved in September although it still remained a bit downbeat. National Australia Bank said its business confidence index rose from minus three points to zero in the month. At the same time, the business conditions index fell from zero to minus three points.
In a statement on Tuesday, NAB said moves from the U.S. Federal Reserve and the European Central Bank to stimulate their respective economies had helped lift confidence.
The greenback firmed to 0.8194 against the kiwi, after sliding to a 4-day low of 0.8240 in early Asian deals. The next upside target level for the greenback is seen at 0.81.
Retail credit card spending in New Zealand was down a seasonally adjusted 0.6 percent on month in September, Statistics New Zealand said - missing forecasts for a 0.3 percent decline following the downwardly revised 2.7 percent drop in August.
The yen also outperformed, hitting 6-day highs of 83.43 against the franc and 101.04 versus the euro, compared to previous lows of 84.09 and 101.87, respectively. The yen closed deals at 83.97 against the franc and 101.60 against the euro on Monday.
Against the Australian and NZ counterparts, the yen bounced back from 4-day lows of 80.33 and 64.58 and is now worth 79.90 and 64.18 ,respectively. On Monday, the aussie-yen and the kiwi-yen pairs closed deals at 79.84 and 64.20, respectively.
The yen is now trading at 78.28 against the greenback, 125.39 against the pound and 80.19 against the loonie, up from previous lows of 78.44, 125.87 and 80.49, respectively. At Monday's close, the yen was quoted at 78.34 against the greenback, 125.56 against the pound and 80.20 against the loonie.
At 8:15 am ET, Canada housing starts for September is due.
by RTT Staff Writer
For comments and feedback: email@example.com