The US dollar recovered on Wednesday in reaction to weaker single currency. Uncertainty in euro zone arose due to the region’s debt crisis. According to a Spanish Newspaper, Spain’s government is planning to apply for loans to restructure the country’s banking sector from International Monetary Fund and European Union. The news seemed authentic as the earlier this week Spanish government also gave the projection for 2011 deficit which could increase to 8 percent of the country’s GDP. Yields on 10-year Spanish bond also gained 14 basis points to 5.37 percent further weakening the single currency.

Strategist Geoffrey Yu from UBS commented, “With sovereigns gradually returning to the market to issue, the true tests will begin for the euro zone and so far they haven’t exactly been passed with flying colors.”

The euro fell to 1.2939 versus the US dollar on Wednesday as compared to 1.3064 on Tuesday’s North American trading session.

The dollar index DXY which measures the greenback’s performance against its six major counterparts gained to 80.119 on Wednesday as compared to 79.591 on Tuesday’s late trading hours.

Among other currencies, Hungarian unit took heavy beating and fell to its record low since the launch of the shared currency. The Hungarian Forint fell in reaction to the latest law passed by country’s parliament which is considered hindrance for independence of the central bank. The Forint traded at 320 against 1 euro.

The British Pound declined to 1.5612 against the US dollar on Wednesday as compared to 1.5657 on Late Tuesday. Against the Japanese yen, the US dollar gained to 76.73 as compared to 79.68 on Tuesday.

The single currency fell versus the US dollar on Monday in reaction the Standard & Poor’s statement of possible reduction in ratings of AAA rated euro zone member countries.

The 17-nations shared currency was trading on an upbeat note earlier as the German Chancellor Angela Merkel and French President Nicolas Sarkozy showed interest for an overhaul of European Union treaties so that tougher fiscal rules can be implemented on European Union member nations. Later on the news that Standard & Poor’s rating agency could reduce its AAA rating to AA+ for Germany, France, Austria, Finland, the Netherlands and Luxembourg, in case if the reviewers are not satisfied with actions of the European Union.

Senior currency strategist, David Watt from RBC Capital Markets commented, “Market sentiment was buoyant into the North American session and remained so until late in the session when the stability of credit ratings not only in the EU periphery, but also among the core euro zone nations came into question.”

The euro fell to 1.3386 against the US dollar on Monday as compared to 1.3409 on Friday’s late trading hours. The dollar index DXY which measures the US dollar’s performance against its six major rival currencies gained to 78.654 on Monday as compared to 78.609 on Friday’s North American trading session.

The British Pound however gained versus the greenback to 1.5637 on Monday as compared to 1.5596 on late Friday. The Pound Sterling strengthened on the rise of UK’s dominant service sector index. Against the Japanese Yen, the greenback fell to 77.80 as compared to 78.03 on Friday’s late trading hours.

The US dollar gained on Wednesday as the single currency weakened in reaction to disappointing German bonds auction. Many analysts now fear that the debt crisis the affected the core of the euro zone region.

Director currency research, Kathy Lien from GFT Forex commented, “The German bond auctions were the straw that broke the euro’s back, German bonds are normally perceived as the safest investment in Europe, so if investors aren’t willing to buy German bonds, then Europe is really in trouble.”

The euro was also weakened over the news of Belgian newspaper about the failure of Franco-Belgian bailout plan for the lender Dexia SA. Economists were also concerned about France’s credit rating outlook in reaction to the news.

The euro fell to 1.3334 against the US dollar on Wednesday as compared to 1.3516 on Tuesday’s late trading hours. The dollar index DXY which measures the US dollar’s performance against its six major rival currencies jumped to 79.099 on Wednesday as compared to 78.252 on Tuesday’s North American trading session.

Among other currencies, the British Pound also fell versus the greenback to 1.5515 on Wednesday as compared to 1.5637 on late Tuesday. The US dollar gained to 77.31 against the Japanese yen on Wednesday as compared to 77 on late Tuesday.

The Australian dollar declined 1.6 percent versus the US dollar to 0.9687 on Wednesday.

The single currency recovered on Tuesday as the IMF stepped in and disclosed more tools which could help in improving liquidity and financing needs of its European member countries. The International Monetary Fund pointed out, that new tools will help in meeting the diverse liquidity needs of its member countries. The IMF said, “The new tools will enable the fund to respond better to the diverse liquidity needs of members with sound policies and fundamentals, including those affected during periods of heightened economic or market stress—the crisis-bystanders—and to address urgent financing needs arising in a broader range of circumstances than natural disasters and post-conflict situations previously covered.”

The single currency gained to 1.3513 on Tuesday as compared to 1.35 on Monday’s North American trading session.

The dollar index DXY which measures the US dollar’s performance against its six major counterpart currencies fell to 78.252 on Tuesday as compared to 78.252 on Monday’s late trading hours.

Against the Japanese Yen the US dollar slightly gained to 77 on Tuesday as compared to 76.79 on late Monday. The British Pound gained to 1.5637 versus the greenback as compared to 1.5630 on Monday.

Many analysts were also of the opinion that Thanksgiving holiday of Thursday in United States also played a major role in recovery of the single currency and the euro gained for only short term. Currency Strategist Kathy Lien commented, “The resilience of the euro probably has more to do with short covering and position squaring ahead of an important holiday in the U.S.”

List of major events to affect the trading of the euro versus the greenback for the week ending October 28^th, 2011 is as follows:

On Monday October 24^th, 2011, in euro zone reported its data on manufacturing and services sectors activity along with report on industrial new order. Germany and France reported their separate reports on activity in manufacturing and services sectors.

Today on Tuesday, United States reported its industry data on house price inflation along with data on consumer confidence. In euro zone, report on German consumer climate was published.

On Wednesday October 26^th, 2011, European Union leaders will meet on a one day economic summit to find a solution for the euro zone’s debt crisis. In United States, official data on durable goods, new home sales and crude oil inventories will be published.

On Thursday October 27^th, 2011, euro zone will report its official data on M3 money supply while Germany will report its data on consumer price inflation. In United States several reports will be published including, data on third quarter gross domestic product, GDP price index, data on jobless claims and report on pending home sales.

On Friday October 28^th, 2011, euro zone will report its data on French consumer spending while in United States reports on personal income, personal spending, employment costs and consumer prices will be published. Moreover data on consumer sentiment and inflation expectation will also be reported by University of Michigan.

The US dollar remained under selling pressure on Tuesday as the single currency strengthened on umors that European leaders will reach at a decision to tackle the region’s debt crisis. The dollar index DXY which measures the US dollar’s performance against its six major rival currencies declined to 77.679 on Tuesday as compared to 78.213 on Monday’s North American trading session.

The euro gained to 1.3607 against the US dollar on Tuesday as compared to 1.3497 on Monday’s late trading hours.

Global head of currency strategy at Brown Brothers Harriman commented, “Risk appetite continues to recover off the back of hopes that euro-zone policy makers will soon begin to take bold measures to get ahead of the sovereign-debt crisis.”

Further, German Chancellor Angela Merkel assured that Germany will support Greece in a meeting with Greek Prime Minister George Papandreou.  However some analysts had mixed opinions on solution of euro zone’s sovereign debt crisis. Currency strategist, Kathleen Brooks commented, “The market may have jumped the gun, while global officials may want to speed along a process to solve the sovereign-debt crisis, it appears that Europe is going to stay on its slow, plodding path.”

The US dollar further weakened after the release of S&P/Case-Shiller composite index according to which US home prices gained 0.9 percent for the month of July.

Against the British Pound, the US dollar fell to 1.531 as compared to 1.5541 on late Monday whereas surged versus the Japanese Yen to 76.71 as compared to 76.62 on Monday’s late trading hours.