Euro slips amid uncertainty over bank stress tests
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- The U.S. dollar was higher versus the euro but slipped against the Japanese yen in generally range-bound trade as investors awaited congressional testimony later Wednesday by U.S. Federal Reserve Chairman Ben Bernanke.
Weakness for the euro, meanwhile, was attributed in part to continuing jitters ahead of the publication of European bank stress tests on Friday.
Bernanke is set to begin testimony at 2 p.m. Eastern, with investors on the lookout for any signs the Fed is looking to further loosen monetary policy. Read about Bernanke.
"How Fed Chairman Bernanke articulates his views in the semiannual testimony could matter a great deal," said Kenneth Broux, market economist at Lloyds TSB. "Not necessarily on the economy -- we know it's slowing and the Fed has already revised the outlook -- but on the likelihood of additional steps to loosen policy."
Possible scenarios include a cut in the rate on central-bank reserves, or more asset purchases, he said, adding that the dollar's recent slide may have factored in some degree of Fed easing.
The dollar index (DXY 82.98, +0.23, +0.28%) , which tracks the greenback against a basket of major currencies, rose to 82.974 from 82.780 in late North American trade on Tuesday.
The euro (CUR_EURUSD 1.2811, -0.0070, -0.5434%) slipped to $1.2808 from $1.2886 late Tuesday. Earlier this week the single currency was unable to extend a push above the $1.30 level against the dollar.
Many market participants are likely unwilling to enter into new positions until the results of the European bank stress test are released on Friday, wrote Ulrich Leuchtmann, currency strategist at Commerzbank in Frankfurt.
"While rumor has it that not all banks have passed the test, [this] is not necessarily a piece of bad news for the euro," he said. If the tests show a limited number of institutions need to make adjustments, it will enhance the credibility of the tests.
The British pound (CUR_GBPUSD 1.5237, -0.0033, -0.2161%) traded at $1.5252 versus the dollar, down from $1.5271.
Minutes of the Bank of England's July 7-8 meeting showed members of the Monetary Policy Committee voted 7-1 to hold the central bank's key lending rate at 0.5%. MPC member Andrew Sentance was the lone dissenter, calling for a quarter-point rate hike for the second consecutive month. Read about the BOE minutes.
While Sentance's surprise June rate call boosted the pound, the latest minutes saw the pound weaken slightly.
The dollar slipped to ¥86.98 versus the Japanese yen, from ¥87.45 late Tuesday.
The Swiss National Bank on Wednesday said the euro's (CUR_EURCHF 1.3454, -0.0105, -0.7744%) sharp fall versus the Swiss franc resulted in a 14 billion Swiss franc ($13.3 billion) foreign-exchange loss in the first half of 2010. Read about the SNB's forex losses.
The hit was cushioned, however, by income from foreign currency and Swiss franc positions and a rising price for gold, which limited the SNB's estimated first-half loss to around CHF4 billion, the central bank said.
The broadly weaker euro traded at CHF1.3462 versus the franc in recent trade, down 0.7% on the day.
