MW: Dollar, yen gain on the euro as worries bubble up
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- The dollar and Japan's yen rose Wednesday as foreign-exchange markets took a cue from mostly sagging equity markets, leaving the lower-yielding currencies as beneficiaries as investors sought safety from the unknown in riskier assets.
The dollar index (DXY 84.09, +0.00, +0.00%) , a measure tracking the performance of the greenback against a basket of six major currencies, rose to 84.201, up from 84.113 late Tuesday.
The euro (CUR_EURUSD 1.2603, -0.0021, -0.1663%) slipped to $1.2588 from $1.2618 seen in late North American trading Tuesday. Against the yen, the euro (CUR_EURYEN 109.9400, -0.5900, -0.5338%) lost about 0.5% to ¥109.89.
The dollar (CUR_USDYEN 87.2600, -0.2800, -0.3199%) slipped to buy ¥87.30, down from ¥87.46 Tuesday.
The yen tends to be the ultimate beneficiary of safe-haven flows when investors are more risk-averse, as they are when stocks sell off.
The British pound (CUR_GBPUSD 1.5168, +0.0018, +0.1188%) fetched $1.5145, compared to $1.5135 late Tuesday. The Bank of England's policy makers are to announce their decision on interest rates Thursday.
One main cause for uncertainty surrounds the pending results of "stress tests" for European banks, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
"The market appears to have so much to worry about that it is having difficulty choosing which to focus on," he wrote in a note. "The U.S. dollar is sporting a firmer profile against most of the major currencies but is largely confined to yesterday's ranges.
"The market continues to wrestle with two main issues, the state of European bank balance sheets and the continued string of economic data warning of a loss of momentum," he said.
Another potential weight on the euro stems from what might arise during European Central Bank President Jean-Claude Trichet's press conference on Thursday, after officials are expected to keep interest rates stable.
Trichet is certain to be peppered with questions over the scope of the stress tests, which authorities hope will rebuild confidence in the banking sector. Read more about the stress tests.
"Markets have so far been rather skeptical that the tests will be stringent enough to reveal weak points," especially in regard to holdings of sovereign debt that has come under enormous pressure in recent months, said strategists at RBC Capital Markets.
On Tuesday, the dollar pared losses after trading near a two-month low against the euro, a move coinciding with U.S. stocks pulling back from sharp morning gains, following a disappointing report on the outlook for U.S. service-based industries. See Tuesday's Currencies report.
