MW: Dollar slips against euro with Ireland in focus
Single currency edges higher as investors await euro-zone meeting
By Laura Mandaro and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar slipped against the euro but struggled to hold ground against other currencies Tuesday after U.S. economic data showed minimal pricing pressures and investors awaited a meeting of euro-zone finance ministers that could center on Ireland’s troubles.
The U.S. dollar index (EURUSD 1.3590, +0.0005, +0.0368%) , which measures the greenback against a basket of six major currencies, edged up to 78.699 from 78.652 late Monday. It had turned lower just before the 8:30 a.m. Eastern data and then briefly deepened its losses after the Labor Department released its index of wholesale prices.
The producer price index rose 0.4% in October on a seasonally adjusted basis, under economists’ expectations of 0.7%. Core prices, excluding food and energy, fell 0.6%; economists expected a gain of 0.1%. A separate report on industrial production showed flat output in October. Read more on producer prices.
The euro (EURUSD 1.3590, +0.0007, +0.0515%) traded at $1.3609, 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.”
Ireland's Forced Bailout Gets Closer
Ireland is effectively being asked to accept financial help for the good of the euro zone; this could be a tricky sell to its already restive electorate.
News reports said European Union officials are pressing 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-zone finance ministers are set to hold a regular meeting in Brussels late Tuesday afternoon.
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 1.5996, -0.0056, -0.3489%) slipped to $1.6011 from $1.6053, under 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 was flat against the Japanese yen (USDYEN 83.1100, -0.0600, -0.0721%) to trade at ¥83.12 compared to ¥83.16 late Monday.
Reading the tea leaves Down Under
The Australian dollar (AUDUSD 0.9795, -0.0051, -0.5180%) fell 0.4% versus its U.S. counterpart to trade at 97.96 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 economists 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.”
