MW: Dollar up slightly as euro rebound loses steam
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- The European single currency's rebound versus the U.S. dollar ran out of steam in midday European trade Wednesday, undercut by concerns the euro-zone aid program unveiled over the weekend will provide only a temporary bandage for the region's budget woes.
The euro (CUR_EURUSD 1.2679, +0.0046, +0.3642%) slipped to $1.2675 versus the dollar after trading above $1.2700 in Asian activity. The currency traded around $1.2697 in late North American trade on Tuesday. The euro (CUR_EURYEN 118.0100, +0.9600, +0.8202%) bought 118.07 Japanese yen, up from ¥117.65.
"It is becoming increasingly clear that the euro zone has not solved its budget difficulties with the European stability mechanism," said Ulrich Leuchtmann, currency analyst at Commerzbank in Frankfurt.
"In the end the mechanism is nothing but a large redistribution exercise within the euro zone. It seems unlikely that an approach of this nature would lead to more solid national finances. Instead it stands to reason that in some countries the requirement to make savings might ease," Leuchtmann said.
The euro staged a comeback against the dollar and yen in Asian trading Wednesday, as investors reacted to a report about a probe by U.S. Federal prosecutors into allegations against Morgan Stanley.
Gross domestic product across the 16-nation euro zone expanded by 0.2% in the first quarter of 2010 compared to the final three months of 2009, according to a preliminary estimate Wednesday by the European Union statistics agency Eurostat. The figure was slightly stronger than expected but underlined concerns about the momentum of the recovery, economists said. Read about euro-zone GDP growth.
The dollar was temporarily undercut in Asian activity after The Wall Street Journal, citing people familiar with the matter, said U.S. federal prosecutors were probing allegations Morgan Stanley (MS 27.30, -1.08, -3.81%) misled investors about mortgage-derivatives deals it helped design and sometimes bet against.
The dollar (CUR_USDYEN 93.0700, +0.4000, +0.4316%) rose to ¥93.24, from ¥92.68 late Tuesday.
The dollar index (DXY 84.49, +0.03, +0.03%) , which measures the U.S. unit against a basket of six major currencies, erased an earlier loss to trade at 84.635, up from 84.481 late Tuesday.
The British pound (CUR_GBPUSD 1.4927, +0.0001, +0.0060%) traded virtually unchanged versus the dollar at $1.4936 in recent action, after earlier pushing above the psychologically important $1.50 level.
The pound gained ground after Conservative leader David Cameron became Britain's new prime minister Tuesday night, ending 13 years of Labour rule and five days of post-election turmoil. Cameron will head a coalition government made up of the Conservatives and the Liberal Democrats.
Cameron on Wednesday began to formally assemble his Cabinet, with Lib Dem leader Nick Clegg confirmed as deputy prime minister. Read more about Cameron.
Meanwhile, Bank of England Governor Mervyn King welcomed a budget pact between the Conservatives and Lib Dems that aims to accelerate U.K. deficit cuts. The central bank, in its quarterly Inflation Report, also indicated it wouldn't move quickly to raise interest rates. King also left the door open to resuming purchases of British government bonds, or gilts, under the bank's quantitative-easing program. Read about Mervyn King.
