Focus remains on Irish debt problems, G-20 meeting
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar rose Thursday, adding to gains that have put the greenback on track for its best week in three months, while the euro continued to feel heat from rekindled worries about Ireland’s fiscal fate and turmoil in sovereign-debt markets.
The dollar index (DXY 78.13, +0.49, +0.63%) , which measures the greenback against a basket of six major currencies, rose to 78.063 from 77.621 late Wednesday.
This index has advanced 2.1% this week, even though the week isn’t over. For full weeks, the index hasn’t gained that much since mid-August.
“Europe remains the ongoing problem with Irish credit default spreads widening once again,” said Kathy Lien, director of currency research for GFT.
The euro (EURUSD 1.3663, -0.0119, -0.8635%) fell to $1.3684, down from $1.3787 level it saw in late North American trading on Wednesday.
The single currency is down 2.7% this week.
Versus the Japanese yen, the dollar (USDYEN 82.4500, +0.1900, +0.2310%) reached ¥82.47 yen, up from ¥82.23 late Wednesday. See currency data and tools.
The British pound (GBPUSD 1.6134, +0.0015, +0.0931%) changed hands at $1.6144, up marginally from $1.6133. The euro fell 0.8% to change hands at 84.82 pence.
Overall activity is subdued with no major data in Europe and the U.S. Treasurys market closed in observance of Veterans Day.
Will Ireland go for the bailout?
The foreign-exchange focus remains on Ireland as speculation grows that the nation may soon have to resort to tapping the European Union-International Monetary Fund stabilization fund established earlier this year. Read story about Ireland's fiscal woes.
Irish government bond yields continued to soar on Thursday, with the 10-year hitting 8.9%, according to analysts, as investors dumped so-called peripheral bonds. The cost of insuring Portuguese, Irish and Spanish debt against default rose sharply in early activity but then moderated.
Ireland has led peripheral yields higher, with Portugal also under heavy pressure.
“Should Ireland receive a Greek style bailout, it would initially be bearish for the euro, but could eventually bring stability to the currency,” Lien said. “However until the Irish situation comes to rest, risk appetite in the financial markets will remain fragile.”
Swiss franc
Also on currency traders’ minds, the euro lost further ground on Switzerland’s currency to change hands at 1.3328 francs.
The short euro/Swiss franc trade has become the proxy for the euro-zone’s renewed debt issues, with the single currency losing more than 2.7% this month against the franc.
“While the pair is likely to remain under pressure as long as sovereign concerns are on investors’ minds, after such a large move the market may be taking a breather before embarking on another leg lower,” said Kathleen Brooks, research director at Forex.com.
Group of 20 focus
Meanwhile, disagreements over the U.S. Federal Reserve’s decision to embark on a fresh round of quantitative easing threaten to overshadow the Group of 20 summit underway in South Korea, said Ulrich Leuchtmann, analyst at Commerzbank in Frankfurt.
The G-20 gathering makes it difficult to recommend a short-term trading bias, said Steve Barrow, currency strategist at Standard Bank.
“It seems likely from the comments so far that G-20 leaders want to produce something that it hopes might impress the markets. Something that will push back the tide of protectionism,” he said in a research note. “But what it hopes it can deliver and what it actually delivers might be two different things.”
Standard Bank’s bias is to be long the dollar against the yen “in case something positive is delivered that helps reduce risk aversion,” he said.
