By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar extended gains versus the euro and other major currencies Wednesday, as jitters over Greek politics kept traders interested in the relative safety ascribed to the U.S. currency.
The dollar index DXY +0.21% , which measures the U.S. unit against a basket of six major currencies, rose to 76.109 from 75.915 late Tuesday.
The euro EURUSD -0.3262% fell to $1.4044 from $1.4102 in late North American trading Tuesday. See real-time currency quotes and tools.
The euro came under pressure from a report, later denied, about a potential early election in Greece as a kind of referendum on the drastic budget cuts and fiscal measures needed to get the country‘s debt under control.
“The Greek tragi-comedy continues, and this morning’s rumor of a snap election almost triggered full-scale risk aversion,” said Sebastien Galy, a strategist at Societe Generale.
A Greek government official denied such a plan was in the offing, Dow Jones Newswires reported, but declined to comment on Greek media reports that the government may offer a referendum on its latest round of austerity measures.
While Greek Prime Minister George Papandreou appears not to be ruling out a referendum, "it’s hard to see a referendum passing if it’s put to the people,” said Chris Walker, currency strategist at UBS.
“If it does happen, it would be a crucial moment for Greece and the euro as the people will decide on the country’s fate,” he said in a research note. “It will give Papandreou the mandate to take drastic action in either direction: extreme austerity or default.”
“The idea of putting the austerity measures to a referendum has been floated within Greece, though this seems extremely unlikely to happen unless the government is confident the measures would pass,” said strategists at RBC Capital Markets. “This currently looks highly unlikely.”
On Tuesday, the euro posted modest gains as investors tried to gauge Europe’s sovereign-debt problems.
British GDP, Japanese trade data
The British pound GBPUSD +0.41% turned up to $1.6226, from $1.6177 Tuesday.
Britain’s Office for National Statistics said Wednesday that first-quarter gross domestic product expanded by an unrevised 0.5%, offsetting an identical decline in the final three months of 2010.
The breakdown of the data showed household consumption fell 0.6%, while capital spending showed a 4.4% decline.
Michael Derks, chief strategist at FxPro, said the misery in the private sector comes as private spending has collapsed by 7.3% over the past three years, making it little wonder the Bank of England’s Monetary Policy Committee “is masticating so intensely on the issue of hiking rates.”
The Australian dollar AUDUSD -0.4644% bought $1.0482, down from $1.0545.
Against the Japanese yen, the dollar USDYEN +0.0488% bought ¥82.03, up marginally from ¥81.90 late Tuesday.
Currency markets shrugged off news that Japan’s trade balance swung to a deficit in April due to the March 11 earthquake, though the drop in exports was less than expected.
