MW: Dollar up slightly as euro rebound loses steam
British pound turns down as interest rates overshadow new government
By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar rose versus the British pound and Japanese yen on Wednesday, and fluctuated around little changed versus the euro as traders continue to try to balance new data with concerns the euro-zone aid program unveiled over the weekend will provide only a temporary bandage for the region's budget woes.
The dollar index (DXY 84.47, +0.00, +0.00%) , which measures the U.S. unit against a basket of six major currencies, erased an earlier loss to trade at 84.550, up from 84.481 late Tuesday.
The euro (CUR_EURUSD 1.2684, +0.0052, +0.4117%) slipped to $1.2681 after trading above $1.2700 in Asian activity. That's down from $1.2697 in late North American trade on Tuesday. The shared currency hit a 14-month low last week.
The dollar (CUR_USDYEN 93.1400, +0.4700, +0.5072%) rose to 93.05 yen, from 92.68 yen late Tuesday.
The British pound (CUR_GBPUSD 1.4863, -0.0063, -0.4200%) fell to $1.4876, versus $1.4936 late Tuesday, after earlier pushing above the psychologically important $1.50 level.
The euro avoided any notable decline as Spain's prime minister announced a plan to cut spending and Portugal deceived decent demand at its sale of $1 billion in 10-year bonds. Read about Spain's deficit plan.
Also helping the euro earlier, gross domestic product across the 16-nation euro zone expanded by 0.2% in the first quarter of 2010 -- slightly stronger than expected but underlined concerns about the momentum of the recovery, economists said. Read about euro-zone GDP growth.
The massive rescue plan floated by the European Union and International Monetary Fund over the weekend pushed the euro up on Monday by the most since January, with traders expressing some relief that Greece and others might be left to flail in the wind. Others see the cure as just as bad as the disease.
"Several strategists, ourselves included, believe that the bailout merely transfers to damage from the individual countries to the entire E.U. region," said T.J. Marta, chief market strategist at Marta on the Markets.
The euro held onto gains against the yen that began in Asian trading hours, as investors reacted to a report about a probe by U.S. Federal prosecutors into allegations that Morgan Stanley (MS 27.20, -1.18, -4.16%) misled investors about mortgage-derivatives deals it helped design and sometimes bet against. Read about Morgan Stanley probe.
Weighing on the British pound, Bank of England, in its quarterly Inflation Report, indicated it wouldn't move quickly to raise interest rates. Governor Mervyn King left the door open to resuming purchases of British government bonds, or gilts, under the bank's quantitative-easing program. Read about Mervyn King.
King also welcomed a budget pact from the newly formed coalition government that aims to accelerate U.K. deficit cuts.
The pound had gained ground starting late Tuesday after Conservative leader David Cameron became Britain's new prime minister, ending 13 years of Labour rule and five days of post-election turmoil. Cameron will head a coalition government and on Wednesday began to formally assemble his Cabinet, with Liberal Democrat leader Nick Clegg confirmed as deputy prime minister. Read more about Cameron.
