MW:Dollar off, euro rebounds as risk appetite revives
FRANKFURT (MarketWatch) — The dollar and the Swiss franc both gave back a chunk of recent gains versus the euro, as the 17-nation shared currency benefitted from a revival in risk appetite fueled by stronger-than-expected Chinese growth data.
The euro EURUSD +0.70% changed hands at $1.4074, rising from $1.3975 in North American trade late Tuesday, a day on which it traded as low as $1.3836, according to FactSet Research. That was its weakest level in nearly four months.
China’s economy expanded by 9.5% in the second quarter from a year earlier, government data showed, down from the 9.7% pace seen in the first quarter but above the 9.4% anticipated by economists. Analysts said the data helped dispel fears of a hard landing by the Chinese economy, which has been crucial to world economic growth. Read more: “Asia stocks rise on China data reprieve.”
Analysts said the Chinese data and a fall back in Italian-government-bond yields provided room for a short-covering rally by the euro/U.S. dollar pair. Yields on the Italy bonds had spiked earlier this week
“With so many market participants negative on the EUR/USD, the currency is vulnerable to a further short squeeze, but the overall outlook for the pair remains problematic if the European authorities are unable to provide a viable resolution to the sovereign debt crisis,” said Boris Schlossberg, director of currency research at GFT.
The euro also rebounded versus the Swiss franc EURCHF +0.73% after setting a new all-time low versus the currency earlier this week. The Swiss unit proved among the top recipients of safe-haven flows as the euro-zone debt crisis deepened.
The euro gained 0.6% to trade at 1.1690 francs.
Bank of Italy Governor Mario Draghi, in a speech to an Italian banking conference, said the nation’s banks are sound and would easily pass European banking stress tests, according to Reuters.
Draghi also called for a more robust euro-zone system for responding to financial crises. Draghi is set to take over as president of the European Central Bank when Jean-Claude Trichet steps down in October.
Ireland downgraded at Moody’s
The euro appeared to shrug off a decision by Moody’s Investors Service on Tuesday to cut Ireland’s foreign- and local-currency government-bond ratings by one notch to speculative, or junk, grade of Ba1, from Baa3. Read more about Moody's Ireland downgrade to junk.
Analysts said the move wasn’t a surprise following a similar move on Portugal last week. Moreover, the ECB subsequently waived collateral rules on Portuguese debt, ensuring that banks would remain able to use Portuguese government debt as collateral for ECB funding.
Schlossberg said a large auction of Italian-government bonds on Thursday and the Friday publication of the stress tests would be likely to determine the euro’s direction against the dollar.
The dollar index DXY -0.55% , which measures the U.S. unit’s performance against a basket of six other major currencies, slipped to 75.589 from 76.028 late Tuesday.
Against the yen, the dollar USDJPY +0.07% traded at ¥79.27, down from ¥79.40 in late North American trading on Tuesday, but well above the dollar’s Tuesday intraday low of ¥78.48 on the EBS trading platform. That was its lowest level since it dropped to a record bottom of ¥76.25 on March 17, days after Japan’s March 11 earthquake. See real-time currency quotes and tools.
Japanese Finance Minister Yoshihiko Noda said the dollar’s drop against the yen was “a little one-sided,” according to media reports.
