MW: Mixed dollar gives back some gains as euro stabilizes
NEW YORK (MarketWatch) -- The dollar pared a small loss against the euro Thursday, following a major rally on the shared currency in the prior session, amid reports that European Union leaders are leaning toward lending support to Greece in conjunction with loans from the International Monetary Fund.
What's next for the debt-ridden country has been a catalyst for currency trading in virtually every sesson recently.
The dollar index (DXY 81.87, +0.03, +0.04%) , which measures the greenback against a trade-weighted basket of six major currencies, fell to 81.817 from 81.911 late Wednesday, when it had jumped by the most this year.
After rebounding earlier, the euro recently changed hands at $1.3342, compared to $1.3332 in North American trading late Wednesday. The single currency got routed during Asian trading, tumbling to a fresh 10-month low at $1.3282.
The dollar (CUR_USDYEN 92.4400, +0.2800, +0.3038%) rose to 92.51 Japanese yen, reversing an earlier decline and up from 92.15 yen late Wednesday. The dollar had added some 2% versus the yen on Wednesday.
The British pound (CUR_GBPUSD 1.4875, -0.0002, -0.0101%) rose 0.2% to trade at $1.4915. It had been even higher after the government reported a stronger-than-expected rise in February retail sales. Read about U.K. retail sales.
German Chancellor Angela Merkel, before departing for a much-anticiapted E.U. meeting, told German lawmakers any aid plan for Greece should consist of support from the IMF as well as bilateral aid from euro-zone members. Read about the E.U. summit.
Separately, the president of the European Central Bank vowed that the institution will continue to accept securities with credit ratings as low as BBB- into 2011, in a move expected to take pressure off of Greek banks. Greece's government debt is rated BBB+. See more on the central bank's move to supply relief for Greece.
The European Central Bank's system to accept low-rated debt can be read as "confirming they will not hang Greece out to dry," said Elsa Lignos, a currency strategist at RBC Capital Markets.
As for the E.U. summit, Lignos sees two possible outcomes.
"Either another failure to agree on detail and no substantial announcement, undermining the euro one more time, or a joint E.U./IMF package to act as a backstop for countries with excessive debt, if and only if they cannot access finance from markets," she wrote in a note. "The kneejerk reaction may be positive for the euro, but longer term, the euro-zone problems still remain."
The euro latest downdraft this week came about after Fitch Ratings downgraded Portugal's credit rating, adding to worries about sovereign debt across the periphery of the euro zone.
Chinese official's take on Greece
The euro's overnight slide came as Zhu Min, deputy governor of the People's Bank of China, said the Greek debt crisis was the "tip of the iceberg" for the euro zone.
"I don't think Greece will go bankrupt because it's still relatively small, but we don't see decisive action that tells the market, 'We can solve it, we can close it,' so the market is very volatile," Zhu reportedly said. He called Spain and Italy the "main concern today."
The remarks "are as good an indication as any of how rapidly fundamental worries are growing about the euro zone," said Simon Derrick, chief currency strategist at Bank of New York Mellon.
If a bailout is agreed to, the euro could see a relief rally in light of heavy short positioning, wrote strategists at BNP Paribas. Failure to reach an agreement, however, would be negative for European financial markets and would be likely to trigger another move for the euro sharply lower.
"We continue to see little on the horizon to provide the euro with support and maintain our bearish strategy of selling euro/U.S. dollar rebounds," they said.
Also lending some support for the dollar, Labor Department data showed first-time filings for unemployment benefits totaled 442,000 last week, down 14,000 -- a little better than economists anticipated. Read about jobless claims.
"The latest read on initial claims is extremely encouraging," said economists at RBS. "That bolsters our view that labor demand is gradually improving."
