Dollar gives back some intervention gains vs. yen; SNB awaited
By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — The U.S. dollar was lower versus most major rivals on Thursday, with the euro rising to a one-month high against the greenback following a strong Spanish debt auction.
The U.S. unit also gave back some of its intervention-triggered gains against the yen, although it remained in a narrow range as investors stayed on high alert for more direct currency action by Japanese authorities.
The dollar index (DXY 81.24, -0.25, -0.30%) , which tracks the performance of the U.S. unit against a basket of six major currencies, slipped to 81.193 from 81.429 in North American trade late Wednesday.
The euro (EURUSD 1.3073, +0.0061, +0.4688%) changed hands at $1.3096, up from $1.3020 late Wednesday, rising to its highest level versus the U.S. dollar since Aug. 11 after the Spanish government sold 4 billion euros ($5.2 billion) of 10- and 30-year bonds, while borrowing costs fell. Read pulse about the auction.
The auction saw a decline in the 10-year yield to 4.14% from 4.86% at the previous sale. The amount of bids exceeded the amount on offer 2.3 times, up from a bid-to-cover ratio of 1.88 in the previous sale.
The outcome “suggests demand for Spanish paper has increased significantly, as fears of a sovereign-debt default continue to recede,” said Boris Schlossberg, director of currency research at GFT.
The euro may add to gains if equity markets prove supportive, he said. If the price action signals a “true turn” in attitudes toward sovereign-debt risk, “it will remove much of the stigma from owning the euro,” he said.
Versus the yen, the dollar (USDYEN 85.5800, -0.1600, -0.1866%) bought ¥85.65, little changed from ¥85.66 in late North American trading Wednesday.
The dollar soared against the yen on Wednesday as Japan sold an estimated ¥2 trillion ($23 billion) of its own currency to buy dollars, in what would be a record for a single day, according to media reports. The move came after the dollar sank to a 15-year low versus the yen.
The exact amount of the intervention will be revealed at the beginning of next month, when Japan’s Ministry of Finance releases its monthly foreign-reserves data.
While Japan’s recent market moves were in the spotlight, analysts said fundamental factors will continue to pressure the greenback.
“We think the direction of USD/JPY [U.S. dollar/Japanese yen] is ultimately dependent on U.S. yields, which remain under downward pressure and are continuing to weigh on USD/JPY,” said David Forrester and Yuki Sakasai at Barclays Capital in a note to clients Thursday.
The euro rose 0.7% versus the Swiss franc (EURCHF 1.3213, +0.0161, +1.2335%) to trade at CHF1.3127. The dollar was flat versus the Swiss unit at CHF1.0022. The Swiss National Bank is widely expected to leave official interest rates unchanged when it concludes its quarterly policy meeting at 8 a.m. Eastern.
“An SNB rate hike seems premature” in the wake of the Swiss franc’s 20% rise against a trade-weighted basket of currencies since 2008, wrote strategists at UniCredit Bank in Milan.
“Anyway, with a move the bank would signal that it is ready to accept more Swiss franc strength, triggering new lows” for the euro below CHF1.27, they said. Steady rates, however, are unlikely to push the pair much above CHF1.31.
The Chinese yuan hit another high against the dollar on Thursday, as investors awaited U.S. Treasury Secretary Timothy Geithner’s Congressional testimony on China’s currency policy. His prepared remarks indicated he will call on China to allow its currency to appreciate further. Read more on what Geithner will say about China’s currency policy.
The British pound (GBPUSD 1.5613, -0.0013, -0.0832%) traded at $1.5610, down 0.1%.
Earlier, the pound came under selling pressure after data showed U.K. retail sales unexpectedly fell 0.5% in August from the previous month. Economists had expected a 0.3% rise. Read about the U.K. retail sales fall.
