Krona slightly weaker as Sweden faces hung parliament
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar recovered against the euro Monday as worries about European sovereign debt increased and concerns faded that the Federal Reserve would engage in monetary policies that could have the effect of weakening the U.S. currency.
Bond prices for “Ireland and Portugal have gotten ugly in the last hour,” said Andrew Brenner, head of emerging markets at Guggenheim Securities.
The euro (EURUSD 1.3065, +0.0014, +0.1073%) fell as far as $1.3028, before recovering to $1.3047, little changed from $1.3044 in late New York trading on Friday.
The single currency came under modest pressure at the end of last week as peripheral euro-zone government bond yields jumped when measured against safe-haven German bund yields and as the cost of insuring Irish government debt against default soared over renewed worries about the cost of bailing out banks there. Read more about Ireland.
The dollar index (DXY 81.30, -0.12, -0.15%) , a measure of the U.S. unit against a basket of six major currencies, also recovered to stand at 81.421, as opposed to 81.418 late Friday.
The euro declined about 0.3% against the Japanese yen.
The cost to insure both Irish and Portuguese debt also increased, Brenner said. Both countries will attempt to sell more debt this week.
“Like an annoying fungus that keeps growing back, the sovereign debt problems in Europe have returned to haunt the euro,” said Kathy Lien, director of currency research at GFT.
Overall activity in currencies was subdued amid a lack of major economic data in Europe and a public holiday in Japan, strategists said.
“This week will continue to be dominated by concerns about further Fed easing or stimulus at Tuesday’s Federal Reserve rate meeting,” said Michael Hewson, market analyst at CMC Markets.
This will be particularly so after the University of Michigan’s consumer-confidence index fell Friday to its lowest level in more than a year, he said.
The rate-setting Federal Open Market Committee isn’t expected to take action on interest rates at the culmination of its one-day meeting, but investors will be scouring the subsequent announcement for clues to the potential for a further round of bond purchases, known as quantitative easing, against a backdrop suggesting a sputtering U.S. recovery.
The euro is likely to remain between $1.30 and $1.31 ahead of the FOMC’s decision, wrote strategists at UniCredit Bank in Milan.
From a technical standpoint, Hewson said the break through resistance last week at the $1.2920 to $1.2930 level maintains positive momentum for the single currency, for now, with a close below that level needed to reassert downside pressure and signal a test toward $1.2780.
Important resistance stands at the 200-day moving average at $1.3230, he said, marking a key barrier to a test of the August high near $1.3335.
Yen in wake of intervention
The dollar traded at 85.76 yen (USDYEN 85.7200, -0.0300, -0.0350%) , easing from ¥85.82 Friday.
The pair has hovered around the ¥85 area since Japanese authorities intervened, buying dollars and sell yen, in an effort to halt the Japanese currency’s sharp gains. The dollar had hit a new 15-year low versus the yen below ¥83 at midweek.
Investors remain reluctant to challenge the Bank of Japan on its efforts to impede the yen, wrote strategists at KBC Bank in Brussels.
Economic data have had hardly any impact on trading in the dollar against the yen, which has instead become a “tactical game” between Japanese authorities and the market, they said.
Also Monday, the Swedish krona was also stronger on the dollar (USDSEK 7.0121, -0.0655, -0.9259%) but was slightly weaker versus the euro.
Sunday elections in Sweden saw Prime Minister Fredrik Reinfeldt’s center-right Alliance coalition fall short of the parliamentary majority needed to form a new government. Read more about the Swedish election.
The British pound (GBPUSD 1.5587, -0.0068, -0.4344%) turned lower, falling about 0.4% against the dollar to $1.5563, and losing 0.3% versus the euro.
