The dollar was higher for a second day versus the euro on Tuesday, supported by renewed fears that Europe will struggle craft a political solution to their simmering sovereign debt crisis. German Chancellor Angela Merkel took the wind out of the markets yesterday when a spokesman warned that an upcoming EU summit will not produce a comprehensive solution to the debt debacle. Meanwhile, China's gross domestic product expanded at the slowest pace in nearly two years in the third quarter, adding to evidence the economy is heading towards a soft landing as government efforts to cool inflation slowly takes effect.
And confidence among German investors dropped to its weakest level in nearly three years in October. The German economic sentiment index fell to -48.3 from -43.3 in September, the Mannheim-based ZEW Center for European Economic Research said. The score was well below the consensus forecast of -45. With risk aversion picking up, the dollar rose to $1.3670 versus the euro, having started the week near $1.39.
The dollar firmed a bit versus the sterling, improving to $1.57 from near $1.58. On the other hand, the buck eased below Y76.70 versus the yen, edging towards a record low of Y75.94 from back in August.U.K. consumer price inflation rose to 5.2 percent from 4.5 percent in August, data from the Office for National Statistics showed Tuesday. The rate was above the 4.9 percent consensus forecast. At 8:30 am ET, the Labor Department is scheduled to release its U.S. producer price inflation report. Economists expect the headline index to show a 0.3 percent increase for September, while the core producer price index is expected to have risen by a more modest 0.1 percent. The National Association of Home Builders is scheduled to release the results of its October survey on homebuilders' confidence at 10 am ET. The consensus estimates call for an increase in the index to 15 from 14 in September.
Federal Reserve Chairman Ben Bernanke is scheduled to speak to a Boston Fed Bank conference on the long term effects of the great recession at 1:15 pm ET.