Pound stabilizes after Moody’s reportedly warns on U.K. AAA rating
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar rose against the euro and other major currencies on Wednesday after a speech by Federal Reserve Chairman Ben Bernanke offered no sign a further round of quantitative easing is in the works.
His comments, out late Tuesday, had weighed on the dollar in the direct aftermath of the speech. But as global equities and commodities also sold off in reaction, investors moved to the dollar and other currencies sought as safe havens.
The dollar index DXY +0.28% , which measures the performance of the U .S. unit against a basket of six currencies, traded at 73.815, up from 73.528 in late North American trading on Tuesday.
A decline in risk appetite tends to benefit the dollar and safe-haven currencies such as the Swiss franc and Japanese yen.
Analysts also noted that Treasury yields fell to new lows -- in particular 2-year yields 2_YEAR -1.96% approached their record low -- and these have a strong correlation to the dollar declining against the Japanese yen. Read more on Treasury yields.
The dollar USDJPY -0.30% bought 79.85 yen, down from ¥80.05 Tuesday.
The euro EURUSD -0.51% traded at $1.4621, down from $1.4696 late Tuesday.
The euro also fell against the Swiss franc EURCHF -0.40% , by 0.5%. The U.S. dollar USDCHF +0.11% slipped about 0.1% against the franc.
Bernanke said he expects jobs and growth to pick up in the second half of the year, while acknowledging that the economy has so far been surprisingly weak. Read the text of Bernanke‘s speech.
The remarks suggest a further round of quantitative easing, or QE3, is unlikely even if the economy continues to dip, said Kathleen Brooks, research director at Forex.com.
“Risky assets got hit and Bernanke’s comments caused a flight to safe havens,” she said.
As for U.S. data, the only major report due out is the Federal Reserve’s Beige Book, a compilation of economic anecdotes from the regional Fed banks.
Greece, U.K.
Also weighing on the euro were more public tensions between Germany and other countries about how to deal with Greece’s debt problems.
Analysts said the European Central Bank and Germany appear headed for a clash over Greece after German Finance Minister Wolfgang Schaeuble late Tuesday sent a letter to the ECB and euro-zone finance ministers calling for a seven-year rollover of Greek debt. Read “ECB, Germany head for clash over Greece.”
Schaeuble has warned about the threats of a disorganized insolvency for Greece, but time pressures and the complexity of the matter could lead to such an outcome, said currency strategists at Commerzbank.
“The foreign-exchange market does not seem to have grasped this risk so far,” they said in a research note. “A controversial debate between the individual parties over the coming days is likely to change that.”
Adding additional pressure on the currency, German manufacturing output came in weak, but the ECB is still expected to signal on Thursday that it intends to raise interest rates. See story on ECB, rate hike.
Separately, the British pound came under pressure after Market News International quoted a Moody’s analyst as saying Britain’s AAA credit rating could be threatened if growth remains weak and the government doesn’t meet its deficit targets.
A Moody’s spokesman subsequently said the remarks don’t represent the company’s “central scenario,” Dow Jones Newswires reported.
Sterling GBPUSD -0.39% fell as low as $1.6352 earlier, and lately traded at $1.6374, down from $1.6444 Tuesday.
