The Dollar steadied versus the Euro and Yen on Monday at the start of a busy week for US data which should shed light on the extent to which the credit markets turmoil is taking a toll on growth. Trading was subdued due to a Labor Day public holiday in the United States.
High-yielding currencies got a boost as risk aversion eased after the Federal Reserve and US government gave assurances that they would protect the economy from the sub-prime mortgage crisis. Fed Chairman Ben Bernanke repeated late last week that the central bank would take all necessary steps to protect the economy from the market volatility but would not bail out lenders or investors suffering big losses. US President George W. Bush pledged to help homeowners in danger of defaulting on risky mortgages, but emphasized that the government would not rescue the mortgage lending industry. The comments reassured investors, spurring a rally on Wall Street on Friday. In foreign exchange, reduced risk aversion made people more willing to hold carry trades where purchases of high-yielder like the New Zealand dollar are funded by cheap borrowing in currencies such as the Yen.
US data due this week includes the Institute for Supply Management's manufacturing activity in August on Tuesday, the Fed's beige book summary of the economy's performance on Wednesday and the monthly non-farm payrolls report on Friday. Economists expect a median reading of 53.0 for the ISM index versus 53.8 in July.
Central banks will be also closely watched with the Bank of England, the ECB, Sweden's Riksbank and the Bank of Canada all making crucial interest rate decisions. The market is looking for the Fed to cut rates by at least 25 basis points to 5% at its Sept. 18 policy meeting. ECB President Jean-Claude Trichet has tried to keep policy options open but many market players expect the ECB to keep rates steady at 4.00 percent this week.
The Dollar was steady against the Yen at 115.81. It was nearly unchanged against the Euro -0.1% at 1.3616. The yen came under pressure from data released on Monday that showed weaker capital spending in the second quarter. More analysts expect that Japanese rate hikes may be delayed.