By Lisa Twaronite, MarketWatch
TOKYO (MarketWatch) — The dollar and yen gained on their European rival Monday, ahead of an emergency euro-zone meeting due later in the day, reportedly aimed at preventing the Greek sovereign-debt contagion from spreading to Italy.
Top officials of the European Council, the European Central Bank and the European Commission will meet later Monday amid concerns the region’s debt crisis could spread. Read more on emergency euro-zone meeting.
ECB President Jean-Claude Trichet is scheduled to attend the meeting, along with Jean-Claude Juncker, chairman of the region’s finance ministers; European Commission President Jose Manuel Barroso; and Olli Rehn, the economic and monetary affairs commissioner, Reuters reported, citing official sources.
The ECB is seeking a bigger rescue fund for the euro zone, according to a report in the Monday edition of the German newspaper Die Welt, citing senior ECB officials.
The euro EURUSD -0.17% slipped to $1.4207, from $1.4247 in late North American trading on Friday. See real-time currency quotes and tools.
Against the yen, the euro EURJPY +0.06% was buying ¥114.68, down from ¥114.90 late Friday.
On Friday, Italian government-bond yields and the cost of insuring Italian sovereign debt against default both jumped, putting renewed pressure on the euro. Italy is the euro zone’s third-largest economy. Read more about Italy, bond yields.
The euro faces downside risks against the yen because of Japanese investors’ large holdings of Italian sovereign bonds. Read more on Japan's Italian bond holdings.
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Obama aiming for big debt deal
U.S. Treasury Secretary Timothy Geithner said the Obama Administration is still looking for a major deal on debt and the debt ceiling. Video courtesy Reuters.
“If the Italian bond market continues to fall, Japanese investors may need to sell Italian bonds, which in turn is likely to be negative” for the euro against the yen, Tohru Sasaki, head of Japan rates and foreign-exchange research at J. P. Morgan Chase in Tokyo, said in a note to clients Monday.
But the dollar’s upside was limited by lingering concerns about the strength of the U.S. recovery, after data released Friday showed the economy added 18,000 jobs in June, far less than economists expected. Read more on nonfarm payroll data.
The dollar index DXY +0.47% , which measures the U.S. unit’s value against a basket of six other major currencies, traded at 75.331, up from 75.179 late Friday.
Against the Japanese yen, the dollar USDJPY +0.29% bought ¥80.72, up from ¥80.65 late Friday.
Japanese investors are also major buyers of U.S. debt, so the yen is sensitive to changes in U.S interest rates. Lower rates make foreign investors less inclined to buy U.S. debt, and rates dropped after the disappointing jobs report. Read story on falling U.S. bond yields.
The dollar’s upside was also limited by concerns about the impasse on the U.S. debt ceiling. A meeting Sunday between Obama and congressional leaders ended earlier than some had expected, with talks scheduled to resume Monday. Read more on U.S. debt impasse talks.
“News over the weekend that talks over the U.S. budget deficit and debt ceiling broke down as Republican pulled out of discussions will leave [dollar] bulls with a sour taste in their mouth,” Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole, said in a note to clients Monday.
The greenback also gained against the British pound GBPUSD -0.11% , which bought $1.6024 compared with $1.6037 late Friday. It also rose against the Australian dollar AUDUSD -0.45% , which was changing hands at $1.7011, down from $1.0748.
