Fears about Fed activity overshadow Anglo Irish Bank rating cut
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar pared gains against the euro on Monday, as lingering concerns that the U.S. Federal Reserve will engage in quantitative easing overshadowed Moody’s Investors Service downgrading troubled Irish lender Anglo Irish Bank’s ratings.
The euro (EURUSD 1.3489, +0.0008, +0.0594%) rose above $1.35 briefly, compared with $1.3486 in North American trade late Friday. It recently traded at $1.3473, after falling to $1.3424 earlier.
The dollar index (DXY 79.28, -0.12, -0.15%) , a measure of the U.S. unit against a basket of six major currencies, rose to 79.365, up from 79.333.
Versus the Japanese yen, the dollar (USDYEN 84.1200, -0.2000, -0.2372%) slipped to ¥84.23, down from ¥84.34 late Friday.
Moody’s said it cut Anglo Irish’s unguaranteed senior debt to Baa3 from A3 and cut its dated subordinated debt to Caa1 from Ba1. Read more on Anglo Irish downgrade.
For weeks, bond and currency analysts have noted rising measures of risk surrounding the debt of some European countries, including Ireland. But the increasing credit premiums have not spooked the market as in April and May, when some analysts worried that Greece may have to declare bankruptcy — it hasn’t yet — or that the backing for the shared currency would disintegrate.
The euro gained 3.3% last week, posting its biggest weekly gain since March 2009, but it remains down 5.9% for the year.
On Friday, a relatively robust reading from the Ifo German business-climate indicator and U.S. durable-goods data encouraged investors to seek more risky assets, analysts said, demonstrating a conundrum of sorts for the greenback. Read about euro’s gains Friday.
“Investors have turned bearish on the greenback as speculation mounts that the Fed will increase the monetary base to stimulate the U.S.’s lackluster economic recovery,” said Brian Dolan, chief currency strategist at Forex.com.
“We’re left with an environment where bad U.S. news is met by further dollar selling as the likelihood of additional Fed easing increases, and good U.S. news is similarly met by dollar selling as risk assets are bought,” Dolan wrote in a note.
Earlier Monday, the European Central Bank said M3 money supply grew 1.1% in August compared with the same month last year, up from a 0.2% yearly rate in July and topping forecasts for a 0.4% rise. Loans to the private sector also picked up steam, rising 1.2% compared with August 2009 and accelerating from a 0.8% yearly pace in July.
Davide Stroppa, economist at UniCredit Bank in Milan, said the August figures offered no “meaningful surprises.”
The recovery in growth of money and credit to the private sector seems to proceed, Stroppa said. “Nevertheless, as credit developments remain rather contained, the risks of inflationary pressures stemming from the monetary channel remain indeed limited.”
Also grabbing attention in currency markets, a senior Chinese official said U.S. congressional action designed to push China to upwardly revalue its yuan would be ineffective, according to a report. See more on Chinese yuan.
The Ways and Means Committee of the U.S. House of Representatives on Friday cleared legislation that would impose duties on goods from countries with currencies deemed to be undervalued.
South Korean authorities bought dollar Monday to curb the won’s rise after it hit a fourth-month high versus the dollar, news reports said. Read more on Bank of Korea.
