Dollar Pares Gains As US Legislators Backs Military Action

The greenback pared its early gains versus the yen and the euro on Tuesday after U.S. Congressional leaders voiced their support for President Obama's recent call for a limited military intervention in Syria. U.S. House speaker Boehner stated that the use of chemical weapons in Syria has to be responded to, only the U.S. has the capacity to stop Assad, and he will support Obama's call for action in Syria. Moreover, he believes colleagues should do the same as U.S. allies need to know America will stand up when necessary.

Regarding the yen, the dollar went through a roller-coaster session on Tuesday. The pair extended a recent gain to 99.68 at the Tokyo open due to the rally in Japan's Nikkei index, but then retreated to 99.32. The price rose marginally higher to 99.70 in European morning, but retreated sharply to 99.17 on news that Russian Defence Ministry, "detected two ballistic objects fired toward Eastern Mediterranean." Later, the dollar staged another rebound as the Russian embassy in Syria said, "no sign of missile attack or explosions in Damascus after ballistic launches detected", and eventually climbed to a 1-month top at 99.86 in the New York morning after the release of better-than-expected U.S. construction spending and ISM manufacturing, but only to tank to 99.24 in New York afternoon after comments from Republican House Speaker John Boehner expressing support for strike action in Syria.

U.S. construction spending came in at 0.6%, versus the forecast of 0.4% and the revised 0.0% in Jun. U.S. ISM manufacturing PMI came in at 55.7, better than the market expectation of 54.0.

The single currency traded narrowly in Asia and dropped to 1.3161 in the European morning. Later, despite the euro's brief recovery to 1.3187, the dollar's broad-based strength due to the upbeat U.S. construction spending and ISM manufacturing PMI pressured the euro to a fresh 6-week low at 1.3138 in New York morning before climbing back to 1.3179 in New York afternoon.

The British pound edged higher to 1.5562 in Asia before a brief pullback to 1.5537. Later, although the pair rose strongly to a 1-week top at 1.5605 after the release of better-than-expected U.K. construction PMI (59.1 versus the forecast of 56.9), cross selling of sterling pressured price. The cable fell sharply to 1.5522 in the New York morning on dollar's broad-based strength before recovering to 1.5573.

In other news, German Chancellor Merkel said there have been "unusually challenging" events over her four years term, and German debt reduction has been a "sensational success". Her goal is further reducing joblessness, and the election is about extending German "success". Moreover, she stated that the euro crisis caused by "broken promises and pooling euro debt "won't happen with us". Spain's Economic Minister Guindos said that August jobless claims hint towards market stabilizing, and leading indicators show positive signs which rule out the need for further capital injections to nationalized banks.

On the data front, eurozone PPI in July came in at 0.3% m/m n 0.2% y/y, versus the forecast of 0.1% and 0.1% respectively. U.S. Markit PMI final was 53.1, weaker than the forecast of 54.0.


Data to be released on Wednesday :
Australia GDP, China HSBC Markit Service PMI, U.K. Service PMI, shop price index, France Service PMI, PPI, Italy Service PMI, EU Service PMI, GDP, retail sales, Germany Service PMI, Canada import, export, trade balance, rate decision, U.S. trade balance, retail sales on Wednesday.