Euro trades steady as intervention threat weighs on yen
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- The dollar traded mostly higher Thursday, a day after fears of a global slowdown saw investors abandon equities and other riskier assets to rush into the safe havens of the greenback and the Japanese yen.
"Risk aversion is back and so the U.S. dollar, the yen and the Swiss franc are in demand," said strategists at Brown Brothers Harriman.
Conversely, the euro, the British pound and the Scandinavian, Australian and New Zealand currencies are left vulnerable, they wrote clients.
The dollar index (DXY 82.60, +0.31, +0.38%) , a measure of the U.S. unit against a trade-weighted basket of major currencies, rose to 85.350 from the 82.269 level Wednesday afternoon.
The yen (USDYEN 85.4100, +0.1300, +0.1525%) , which had outpaced all major rivals on Wednesday to hit a 15-year high on the greenback, slipped back after news reports said Japanese Prime Minister Naoto Kan described the yen's recent rally as "rough" and said the recent moves "are a little too rapid." Read about Kan's comments.
The dollar stood at ¥85.36 versus the yen, up from ¥85.25 in late North American trading Wednesday. The dollar traded at an intraday low of ¥84.71 on Wednesday, its lowest in 15 years.
The euro (EURUSD 1.2814, -0.0032, -0.2491%) plunged Wednesday, breaking below the $1.2900 level, and a rebound in Asian hours lost steam during European trading. The single currency slipped to $1.2822 in recent action, down from $1.2889 late Wednesday.
The pound (GBPUSD 1.5600, -0.0040, -0.2558%) traded at $1.5598, down from $1.5680.
Wednesday's dollar rally came about after the Federal Reserve took a small, additional easing step aimed at undergirding the U.S. economy.
The central bank announced Tuesday it would reinvest proceeds from the maturation of mortgage-backed securities holdings back into the government debt market in order to maintain the size of its balance sheet. Softer Chinese economic data also contributed to the bout of risk aversion, which sent equities plunging around the globe.
"The U.S. dollar's recovery against the euro is, on the face of it, rather surprising given that the [Fed] statement essentially rubber-stamped the market's views on U.S. interest rates," said Neil Mellor, currency strategist at Bank of New York Mellon.
Declining rates have "guided the dollar steadily lower since the markets' crisis of confidence in the euro-zone's debt markets and ... the euro abated in early June," Mellor noted.
The answer may be found, he said, in renewed pressure on European bond spreads, with the yield premium demanded by investors to hold Greek, Irish, Spanish and Portuguese bonds over German debt widening on Wednesday.
Meanwhile, trading in the yen played off reports that Rintaro Tamaki, the vice finance minister for international affairs, met with Bank of Japan Executive Director Hiroshi Nakoso to discuss the currency's recent rise. Tamaki told reporters after the meeting that he and Nakoso "exchanged opinions" but provided no details of the discussions.
"All threatening, but we very much remain of the view that an isolated [forex] intervention has little chance of success and it is highly unlikely that the U.S. joins in, in the current context," the Brown Brothers Harriman strategists said.
Also providing grist for the foreign-exchange market Thursday, the European Union statistics agency Eurostat said industrial production in the 16-nation euro zone fell 0.1% in June, falling short of expectations for a 0.5% monthly increase. May data were revised higher, however.
For the second quarter as a whole, industrial production rose 2.5%, said economists at UniCredit Bank in Milan.
Strong industrial production, particularly in Germany, is expected to drive a pickup euro-zone gross domestic product. Eurostat will release its first estimate of second-quarter GDP on Friday. Read about the euro-zone economic outlook.
