Dollar dips on mounting debt concerns, Eurozone debt hope

14:31, July 23, 2011      

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The U.S. dollar fell against major currencies this week, weighed by concerns over the U.S. government' s debt ceiling, and a new bailout deal to solve European debt problems helped lift the euro.

As the deadline of raising the U.S. government' s debt ceiling is approaching, investors' concerns about the issue are mounting. They feared that policy makers may fail to reach agreement in time, resulting in a possibly catastrophic U.S. default.

Rating agency Standard & Poor' s again warned to cut the U.S. triple-A ratings in the near term if politicians in Washington failed to reach agreement on raising debt ceiling.

The agency placed the U.S. credit ratings on watch for possible downgrades last week, saying the risks of government' s debt issue are mounting.

However, economic data helped to ease some of the market tensions. The Commerce Department said the recovery of the U.S. housing market might be picking up momentum, as housing starts in June rose 14.6 percent to a seasonally adjusted annual rate of 629,000, the highest level since January.

Overall, the dollar dipped further this week as the dollar index, which measures the exchange rate of the greenback to a weighted basket of major currencies, lost 1.17 percent to 74.245.

The results of Europe' s banking stress tests released last Friday showed that eight banks failed the test with a combined capital shortfall of 2.5 billion euros. Some analysts questioned that the test might not be tough enough because it excluded the possibility of Greek debt default.

European leaders met on Thursday for a eurozone emergency summit to talk about new measures to address the debt crisis.

On Thursday, European Union leaders agreed to a new 157 billion dollar bailout plan for Greece. The leaders emphasized their commitment to stop the contagion.

The new plan, which included participation from private investors, helped shore up investors' confidence in the euro. The shared currency gained nearly 1.5 percent against the dollar this week.

Against the British pound, the dollar dipped nearly 1 percent this week as the British central bank maintained its ultra-loose monetary policy. The latest minutes of Bank of England' s monetary policy meeting showed that the central bank decided to leave its benchmark interest rate unchanged at 0.5 percent, as most investors had expected. The decision also reinforced the speculation that the rate will stay at that level for another year as the bank said the economy' s soft patch "would persist for longer than previously thought."

Japanese yen was lifted by better-than-expected trade data on Thursday. Japan' s Ministry of Finance said that Japan' s trade surplus in June reached 70.7 billion yen, beating previous expectations of a trade deficit.

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