Remarks by ECB's Weber provide only temporary lift
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- The U.S. dollar and the Japanese yen rose versus most major rivals Tuesday, as worries about the ability of European governments to deliver timely aid to Greece continued to weigh on risk appetite.
The euro was buoyed temporarily after German Bundesbank President Axel Weber, a member of the European Central Bank's Governing Council, told CNBC that the euro faces "no credibility problem" and said there was "no such risk" the single currency would collapse due to debt problems in Greece and other European countries.
Stronger-than-expected German consumer confidence figures were also seen. But relief was short-lived.
Currency traders "remained fixated on the Greek story as atmosphere of uncertainty permeates the markets," said Boris Schlossberg, director of currency research at GFT. "The Germans are still seeking clarification on Greek austerity measures into 2011 and beyond and as a result there is considerable concern that Greece may not be able to meet its May 19 deadline to roll over part of its longer term debt."
The euro (CUR_EURUSD 1.3286, -0.0104, -0.7766%) traded at $1.3307, down from $1.3357 in North American trade late Monday. The euro fell 0.8% versus the Japanese currency (CUR_EURYEN 124.1500, -1.7600, -1.3978%) to trade at 124.80 yen.
The dollar index (DXY 81.76, +0.28, +0.35%) rose 0.2% to change hands at 81.666.
Greece's borrowing costs shot to new highs on Monday after German Chancellor Angela Merkel reinforced calls by other German officials for Greece to provide more details of its long-term deficit reduction plans. Merkel signaled aid under the 45 billion euro ($61 billion) joint European Union-International Monetary Fund package won't be available until a more detailed plan is presented. Read about Greece and Germany.
That's stoked fears that Greece, which is now seen as virtually unable to issue bonds on the open market, may have trouble meeting an 8.5 billion euro refinancing on May 19.
"Our opinion is still that the implementation of a support package is highly likely and in time to prevent a default, but that this doesn't mean Greece will succeed ultimately in redressing its finances, keeping the possibility of default alive for quite some time," wrote strategists at KBC Bank in Brussels.
Fears Greece's woes could spread were seen putting upward pressure on Portuguese bond yields. The cost of insuring Portuguese and Spanish debt rose to record levels Monday.
The fears surrounding Greece were seen keeping a lid on overall risk appetite, contributing to a weaker tone on global equity markets. European stocks were lower and U.S. stock index futures pointed to a negative start for Wall Street. See Europe Markets. Read Indications.
The dollar and yen both tend to rise when risk appetite is on the wane. The dollar rose versus commodity currencies, gaining 0.3% versus the Canadian dollar to buy C$1.0029 and 0.4% versus the New Zealand dollar to NZ$1.3891. The Australian dollar (CUR_AUDUSD 0.9223, -0.0051, -0.5500%) fell 0.5% against the greenback to 92.31 U.S. cents.
The British pound (CUR_GBPUSD 1.5326, -0.0128, -0.8289%) fell to $1.5329, down from $1.5446.
Sterling has held its ground amid the U.K. election campaign, despite persistent polls indicating a strong possibility of a hung parliament, in which no party wins an outright majority.
The pound had suffered amid fears of a hung parliament earlier this year, but recent action indicates such concerns have long been discounted, wrote strategists at Brown Brothers Harriman.
That said, "momentum players and contrarians playing sterling from the long side have met a formidable obstacle at $1.55 and 86.00 (pence) against the euro," they said.
They said the $1.5340 area will be a key level to watch, noting that sterling hasn't ended the North America session below that level -- roughly the 20-day moving average -- since March 29.
The dollar (CUR_USDYEN 93.4300, -0.5800, -0.6170%) bought 93.84 yen, down from 94.01 yen late Monday.
