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MoneyMakerGroup _ Technical & Fundamental Analysis, Daytrading, & Other Strategies _ Fx Outlook-dollar Likely Lower Without Us Debt Limit Progress

Posted by: fxdamus Jul 8 2011, 11:03 PM

FX OUTLOOK-Dollar likely lower without US debt limit progress

Fri Jul 8, 2011 4:02pm EDT



* Dollar pressured by debt ceiling deadline

* Without progress on debt talks, dollar likely weaker

* Weaker-than-expected U.S. jobs data to continue to weigh
(Adds details, updates prices)

NEW YORK, July 8 (Reuters) - The dollar is likely to trend
lower in the week ahead in the aftermath of an abysmal U.S.
jobs report on Friday and without clear signs of progress on
the approaching U.S. debt ceiling deadline.

The U.S. dollar fell against the yen, Swiss franc and
sterling on Friday as significantly weaker-than-expected U.S.
jobs data raised expectations that the Federal Reserve will
leave interest rates low well into next year.

The U.S. Treasury runs out of cash to pay its bills on
Aug. 2 unless the government is legally allowed to borrow more.
With the United States long regarded as the most stable country
and with its currency used as the global reserve, even talk of
a U.S. default has sent shudders through global markets.

The rapidly approaching deadline has for now overshadowed
debt problems in the euro zone.

Friday's jobs report showing only meager growth in June
payrolls added to the gloom surrounding the U.S. dollar as
investors see the government and Federal Reserve as failing in
efforts to stoke economic growth despite a huge stimulus
program and rise in borrowings.

"U.S. policy (on debt) has been extend and pretend," said
Douglas Borthwick, managing director of Faros Trading in
Stamford, Connecticut. "We've come to an end of that."

The euro is down 2 percent EUR= against the dollar this
week, its biggest weekly decline since June 12 at current
prices, while the dollar is down 0.2 percent against the yen
JPY=. The euro is now up 6.5 percent against the dollar year
to date, while the dollar is down 0.7 percent against the yen
in 2011.

One-month euro/dollar risk reversals last traded at -2.825
on Friday EUR1MRR=GFI, according to Reuters data, with a bias
toward euro puts and dollar calls, suggesting more investors
are betting the euro will fall than will rise.

But investors are less bearish than a few weeks ago when
the same risk reversal traded at -3.4, its lowest since June
2010.

Trying to break a budget deadlock and allow for an increase
in the $14.3 trillion debt ceiling, Obama and congressional
leaders are aiming for more than $2 trillion in budget savings
and possibly as much as $4 trillion.

With Republicans and Democrats still far apart, U.S.
President Barack Obama has scheduled another round of talks for
Sunday.

"It's not like there's some imminent deal about to happen,"
said U.S. House of Representatives Speaker John Boehner at a
news conference. "There are serious differences about how to
deal with this very serious problem." For more see
[ID:nWEN5166].

While no deal is expected, investors will be seeking any
clue that there is at least some compromise.

"Any headline indicating they are closer to an agreement
will be dollar positive," said Jessica Hoversen, foreign
exchange and fixed income analyst at MF Global in New York.

BAD JOBS DATA

U.S. employment growth ground to a near halt in June, data
from the U.S. Labor Department on Friday showed, with employers
hiring the fewest workers in nine months, damping down hopes
the economy was on the cusp of regaining momentum after
stumbling in recent months. [ID:nN1E7670C0]

The euro EUR= initially tumbled to a session low of
$1.4204 on Reuters data, then trimmed losses, with traders
saying the sharp drop toward the $1.42 level triggered
short-term buying.

It last traded at $1.4244, down 0.8 percent on the day.

"It's a terrible number, there is no good news you can
glean from it," said David Semmens, U.S. economist at Standard
Chartered in New York, of the payrolls data. "I don't think
this puts pressure on the Fed to do more, though."

Speculators increased bets against the dollar at least up
to the Tuesday before the jobs report was released, according
to CFTC data made public on Friday. [ID:nN1E7671JC]

(Reporting by Nick Olivari; Additional reporting by Julie
Haviv, Wanfeng Zhou and Steven C. Johnson; Editing by James
Dalgleish)


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