MW: Dollar gains; German official’s comments sink euro
Euro brushes off Ireland downgrade, higher inflation reading
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar extended gains against the euro on Friday after comments by a German official saying the country would back a voluntary restructuring by Greece of its debt.
The dollar also benefited from some better-than-expected U.S. economic data, and as a downgrade of Ireland’s credit rating by Moody’s Investors Service increased demand for U.S. Treasury bonds.
The dollar index (DXY 74.89, +0.21, +0.28%) , which measures the greenback against a basket of six currencies, rose to 74.935 from 74.683 late Thursday, when it had dipped to the lowest level since December 2009.
The euro (EURUSD 1.4418, -0.0068, -0.4695%) fell to $1.4410, down from $1.4493 in late North American trading on Thursday. See real-time currency quotes and tools.
“Comments from German Deputy Foreign Minister Hoyer right before CPI hit the euro,” said Richard Gilhooly, director of rates strategy at TD Securities.
A restructuring of Greece’s debt “would not be a disaster,” Hoyer told Bloomberg News.
“Clearly, a restructuring for Greece would open the floodgates for Ireland and Portugal,” Gilhooly said. “Why stick to austerity when other guys are having their principal written off?”
He noted that yields Greece pays above other countries for 10-year debt topped 1,000 basis points, or 10%. “This will not help stabilize the situation and may make matters much worse in the short term,” Gilhooly said.
Around the same time, U.S. government data showed its consumer price index, excluding food and energy, increased 0.1% last month, a little less than some analysts expected. Total prices at the retail level rose 0.5% in March, according to the CPI data. Read about U.S. consumer prices.
Breathing room for the FOMC?
The data back up Federal Reserve officials who have noted that higher oil and commodity prices haven’t passed through to create broader price pressures on other goods, effectively allowing them to wait longer before normalizing monetary policy.
Other analysts noted that prices are still rising, something that would put the Fed’s inflation-fighting credibility at risk.
The risk for the Fed “is exceptionally high that price stability, defined as 1.8% to 2.0% year-over-year, is achieved by December,” said Green, chief of U.S. rates research and strategy at TD Securities.
Meanwhile, a pair of separate economic reports showed manufacturing conditions in the New York region and nationally improved more than forecast. Read more on Empire State survey.
“The manufacturing sector has been one of the biggest beneficiaries of a weak dollar and stronger global demand,” said Kathy Lien, director of currency research at GFT. “Yet even the continued strength in manufacturing will not convince the Federal Reserve to raise interest rates prematurely.”
