Swedish central bank hikes rates; Australia stands pat
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar rose on the euro Tuesday amid more back-and-forth debate over whether the latest plan to give Greece more financial aid would constitute a default, causing uncertain investors to shift away from the shared currency.
The euro also came under pressure as a round of lackluster economic figures dampened prospects for more interest-rate increases from the European Central Bank beyond one anticipated this week.
The dollar index DXY +0.24% , which measures the performance of the greenback against six other currencies, stood at 74.459, up 0.3% from Monday when U.S. markets were closed for the Independence Day holiday.
The euro EURUSD -0.42% fell to $1.4478, down 0.5% from Monday.
The euro also lost 0.8% against the Swiss franc EURCHF -0.77% , considered a clearer indicator of traders’ willingness to hold euros.
Moreover, the shared currency lost about 0.1% against the British pound EURGBP -0.64% and the Japanese yen EURJPY -0.02% .
The euro stayed down after the final June purchasing managers index reading for the 17-nation euro zone fell more than anticipated, retreating to a 20-month low. Read more on euro sone PMI.
Separately, the European Union‘s statistics agency reported that retail sales in the euro zone for May saw a 1.1% monthly drop versus forecasts for a 0.8% decline.
On Thursday, the European Central Bank’s governing board is widely expected to approve a hike in rates of a quarter of a percentage point.
However, the latest data from the region suggest that “growth has slowed significantly and may force [central bank chief Jean-Claude] Trichet and company to reevaluate any further tightening for the rest of the year,” wrote Boris Schlossberg, head of currency research at GFT, in a note.
Also Tuesday, the Financial Times reported that the European Central Bank plans to continue accepting Greek government bonds as collateral for loans provided at least one major ratings agency doesn’t declare the country to be in default. Read more about ECB, Greek banks.
That followed a Wall Street Journal report that the bailout plan put forth by French banks would, according to Standard & Poor’s, constitute a default.
The central bank declined comment on the Financial Times story. Economists said the report underlines expectations that it would take whatever measures are necessary to maintain funding to Greek banks in the event Greece does fail to repay debt.
“This is crucial for Greek banks since they rely almost completely on the ECB to keep themselves alive, without this then the Greek financial sector would collapse, possibly causing contagion across the euro zone,” said Kathleen Brooks, research director at Forex.com.
Pound gains on PMI
Also Tuesday, the British pound edged 0.2% higher GBPUSD +0.23% to trade at $1.6104. The June PMI reading for the British services sector remained below trend but unexpectedly ticked up to 53.9 from 53.8 in May. Economists had forecast a reading of 53.5.
The Swedish krona was mixed after Sweden’s central bank, as had been expected, raised its repo rate by a quarter of a percentage point, to 2%.
“We continue to expect the Riksbank to deliver consecutive rate hikes to 2.75% by year-end but admit that the likelihood for a Riksbank pause has increased as the [second-half] international outlook is less optimistic,” wrote analysts at SEB in Stockholm.
They expect the euro to continue to lose ground versus the Swedish currency “but at a very moderate pace and short term, we may see some profit-taking after the rally higher versus the euro seen in the last week.”
The euro EURSEK -0.30% declined 0.3% versus the Swedish unit to trade at 9.0785 kronor.
Overnight, the Reserve Bank of Australia left its key cash rate on hold at 4.75%. The Australian dollar AUDUSD -0.36% traded at $1.0698, down from $1.0719 on Monday after the decision.
Against the yen, the greenback USDJPY +0.32% rose to ¥81.05, up from ¥80.80 in the previous session.
