Euro softens as PMI points to sharper-than-expected slowdown
By William L. Watts, MarketWatch
LONDON (MarketWatch) — The U.S. dollar edged higher on most major rivals Thursday, stabilizing ahead of jobless-claims data after spending the two previous sessions under pressure as the Federal Reserve indicated it was prepared to take further action to fend off the prospect of deflation.
The dollar index (DXY 80.06, +0.23, +0.28%) stood at 80.097, up from 79.822 on Wednesday.
The euro (EURUSD 1.3330, -0.0063, -0.4704%) slipped to $1.3336, down from $1.3392 in Wednesday’s late North American trading.
The single currency saw some modest pressure after Markit reported that its preliminary euro-zone composite purchasing managers index for September unexpectedly slumped to a seven-month low. Read about the PMI data.
Economists said the data underlined concerns that the euro-zone recovery is losing momentum more quickly than previously expected, a potentially troubling development as governments prepare to embark on austerity programs to bring down budget deficits.
Meanwhile, worries over sovereign debt continue to linger. The yield premium demanded by investors to hold Irish and Portuguese government debt over German bunds continued to widen, while the cost of insuring sovereign debt continued to rise. Read Market Pulse about Irish, Portuguese CDS spreads.
Analysts cited a report in Thursday’s Irish Examiner newspaper, which said Finance Minister Brian Lenihan hinted that holders of Anglo Irish Bank’s subordinated debt may not get all their money back.
Also Thursday, government data showed Ireland’s gross domestic product unexpectedly fell 1.2% for the second quarter compared to the first three months of the year. The contraction followed growth of 2.2% in the first quarter.
The euro, however, has largely shrugged off rising worries about Ireland and euro-zone sovereign debt over recent weeks, hitting its highest level versus the dollar in five months on Wednesday.
The dollar came under across-the-board pressure earlier this week, with traders dumping the greenback in response to the Fed’s indication on Tuesday that it was prepared to consider a further round of quantitative easing if deemed necessary to prevent deflation.
“The initial reaction to the Fed statement, that of ‘bash the dollar and jump on the high-yielders,’ has faded somewhat overnight and this morning to something a bit more subtle,” wrote strategists at FxPro, in a note to clients.
Meanwhile, the U.S. unit jumped 1.4% on the New Zealand dollar (USDNZD 1.3628, -0.0073, -0.5328%) to trade at NZ$1.3744 after authorities there reported disappointing second-quarter data.
And the Australian dollar (AUDUSD 0.9479, -0.0070, -0.7328%) retreated from what was nearly a 26-month high versus the greenback to trade at 94.94 U.S. cents.
The British pound (GBPUSD 1.5668, +0.0022, +0.1406%) traded at $1.5690, up from $1.5667.
Against the Japanese yen, the dollar traded at ¥84.50, down from ¥84.57 Wednesday.
Strategists at Lloyds TSB said Japan may be reluctant to intervene again to sell the yen ahead of Japanese Prime Minister Naoto Kan’s meeting scheduled for Thursday with President Barack Obama.
