Euro buoyed by inflation warning; quake upends New Zealand dollar
By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — The U.S. dollar gained ground on most major rivals Tuesday as turmoil in Libya sent oil soaring and dented overall investor appetite for assets and currencies deemed more risky.
A deadly earthquake in New Zealand and news that Moody’s Investors Service had lowered its outlook on Japanese sovereign debt to negative from stable also added to safe-haven demand in early action, strategists said.
“All this means flight into safe havens," wrote foreign-exchange strategists at Commerzbank in Frankfurt. “Typically this is the Swiss franc but also the US dollar. Typical high carry currencies, such as the Australian dollar ... were the ones that suffered. This time, the exception from the rule is the yen.”
The dollar index (DXY 77.80, +0.11, +0.14%) , which measures the U.S. unit against a basket of six major rivals, rose to 77.841, up slightly from 77.739 seen late Monday in Europe. U.S. markets were closed for a public holiday on Monday.
But initial gains were trimmed as the euro bounced back from earlier weakness.
The shared currency’s rebound was tied to remarks by Yves Mersch, chief of Luxembourg’s central bank. In an interview with Bloomberg, Mersch said the European Central Bank might toughen its language on inflation next week.
The euro (EURUSD 1.3662, -0.0015, -0.1097%) rebounded to $1.3673, up slightly from $1.3666 late Monday. The British pound (GBPUSD 1.6161, -0.0062, -0.3821%) remained lower at $1.6154, down from $1.6221.
“Mersch’s hawkish tone gave the euro a much-needed lift at a time when safe-haven demand was helping both the dollar and the Swiss franc,” said Michael Derks, strategist at FxPro. “Helped by some solid buying from sovereign wealth funds, the euro has recovered a lot of the ground it lost overnight against the dollar.”
The euro remained down 0.5% against the Swiss currency (EURCHF 1.2836, -0.0112, -0.8650%) , changing hands at 1.2860 francs. The dollar (USDSWF 0.9395, -0.0072, -0.7608%) also fell, down 0.7% to buy 94.03 centimes.
Against the Japanese yen, the dollar (USDYEN 83.1600, +0.0400, +0.0481%) slipped to ¥82.94 from ¥83.18 late Monday, as investors digested Moody’s decision to cut Japan’s ratings outlook. Read more on Moody's change to Japan 's outlook.
The New Zealand dollar (USDNZD 1.3101, -0.0071, -0.5390%) fell sharply to trade at NZ$1.3326 against its U.S. counterpart, a decline of 1.7% , in the wake of a major earthquake. The quake, with a magnitude of 6.3, shook Christchurch, New Zealand’s second-largest city, on Tuesday, killing more than 60 and destroying buildings. Read about the New Zealand earthquake.
The Australian dollar (AUDUSD 1.0023, -0.0069, -0.6836%) fell 0.3% to change hands at $1.0031. The New Zealand dollar fell 0.6% versus the Australian currency (AUDNZD 1.3377, +0.0164, +1.2412%) to trade at A$1.3355.
