Single currency edges higher as investors await finance ministers
By William L. Watts, MarketWatch
LONDON (MarketWatch) — The U.S. dollar gained slightly but the euro managed to claw back ground Tuesday, while investors await a meeting of euro-zone finance ministers called as Ireland continues to resist pressure to accept a bailout.
The U.S. dollar index (EURUSD 1.3628, +0.0044, +0.3239%) , which measures the greenback against a basket of six major currencies, stood at 78.715 in recent action, up modestly from 78.652 late Monday.
The euro (EURUSD 1.3628, +0.0044, +0.3239%) traded at $1.3596, up from around $1.3580 in North American trade late Monday and bouncing back from near a seven-week low.
“It seems that the euro is not sure whether to celebrate what we see as the impending Irish bailout or sink on the implications it has for the future of the single currency,” wrote strategists at FxPro. “For now, it appears to be prevaricating somewhere in-between.”
News reports said European Union officials continue to press Dublin to accept a bailout in an effort to prevent credit turmoil from spreading to Portugal and other euro-zone countries. But Irish officials continue to resist calls, saying that Dublin’s coffers will allow it to meet funding needs through the first half of next year. Read the latest on Ireland.
All the same, speculation is growing, strategists said, that Ireland may be convinced to take funds in order to shore up its banks.
Euro sentiment was also boosted by a stronger-than-expected rise in a closely followed gauge of Germany’s economic sentiment. The ZEW index, which measures the expectations of professional German investors over the next six months, rose to 1.8 in November from a negative 7.2 in October, beating forecasts for a negative 4.0. Read Market Pulse on German ZEW data.
Also Tuesday, the British pound (GBPUSD 1.6010, -0.0042, -0.2617%) slipped to $1.5986 from $1.6053, modest pressure after government data showed annual consumer inflation ticked up to 3.2% in October from 3.1% in September.
With inflation remaining more than a full percentage point above the Bank of England’s 2% annual target, central bank Governor Mervyn King was required to write an explanatory letter to Chancellor of the Exchequer George Osborne.
In the letter, King reiterated the central bank’s expectations that inflation will remain above target well into 2011 due to a range of temporary factors but will eventually fall back as spare capacity in the economy puts downward pressure on prices. Policy makers remain ready to move rates in either direction as needed, King said.
Economists said the stubborn inflation data and recent strength in indicators have likely shelved prospects the central bank will follow the Federal Reserve any time soon in renewing quantitative-easing efforts.
The dollar gained ground on the Japanese yen (USDYEN 83.2100, +0.0300, +0.0361%) to trade at ¥83.27, up from ¥83.16 late Monday.
Reading the tea leaves Down Under
The Australian dollar (AUDUSD 0.9816, -0.0030, -0.3047%) fell 0.5% versus its U.S. counterpart to trade at 97.85 U.S. cents.
The Reserve Bank of Australia said that the argument surrounding its recent rate hike was “finely balanced” but that it had decided a modest tightening would be prudent. The central bank lifted its key cash rate by a quarter point to 4.75% at the start of the month, surprising many economy who had expected the central bank to leave policy on hold. Read about the RBA minutes.
“The equivocation in the statement indicates that the RBA is likely to remain on hold for the rest of the year and perhaps all the way through the February meeting,” said Boris Schlossberg, director of currency research at GFT. “Currently the markets are pricing in only 15% and 25% chance of any tightening through the start of next year.”
