MW: Dollar slips; stocks gain, betting on Bernanke
Greenback weighed before Bernanke’s Jackson Hole speech
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar softened against most major rivals Monday as investor appetite for assets perceived as risky, such as equities, rebounded on hopes that U.S. Federal Reserve Chairman Ben Bernanke will hint that help for the economy is on the way.
The dollar index DXY -0.06% , which measures the greenback against a basket of six currencies, traded at 73.907, down from 74.008 in late North American trading Friday.
The euro EURUSD +0.23% rose to $1.4429, up from $1.4389 at the end of last week.
Sterling GBPUSD +0.14% pared gains to $1.6495, compared to $1.6482 on Friday.
The dollar index fell last week as weak U.S. economic data has pushed bond yields to record lows and increased speculation that the Fed will take more steps to prop up the economy, potentially including some options that would further devalue the dollar. Read about dollar’s decline.
Top central-bank officials from around the world are set to gather in Jackson Hole, Wyo. later this week for an annual conference organized by the Kansas City Federal Reserve Bank. Read more on Bernanke, Jackson Hole.
With fears mounting over the potential for a double-dip recession, investors will be watching Friday to see if Bernanke attempts to lay the groundwork for a third round of quantitative easing, or QE3.
“A fair share of people believes that QE3 is waiting in the wings,” said Kathleen Brook, research director at Forex.com. “We believe that more policy stimulus is not a done deal at this stage.
However, many analysts, politicians and other Fed members “are of the view that QE measures are completely useless” and only lead to unwanted side effects: inflation and currency devaluation, wrote strategists at Commerzbank.
Still, the hope of some kind of easing or monetary stimulus helped major assets deemed riskier, including stocks and oil, rebound from recent declines, indicating some investors think they were oversold and worth shifting back into from assets considered the safe havens, including Treasury bonds. Read about Treasury prices falling.
U.S. stocks opened higher, with the Standard & Poor’s 500 Index SPX +1.34% gaining 1.6%.
European debt
Currency analysts also note a continued string of minor developments out of Europe regarding the region’s sovereign debt crisis. In general, they expect the debt problems to continue and cap gains by the euro.
German Chancellor Angela Merkel on Sunday reiterated her opposition to the issuance of euro-zone bonds as a potential solution to the region’s debt crisis, saying that such measures would do little to alleviate debt concerns and that policy makers wouldn’t allow markets to dictate their actions.
Strategists said the comments show the onus remains on the European Central Bank to cap rising bond yields in Italy and Spain.
The ECB said Monday it settled 14.3 billion euros in purchases of government bonds last week. That data is being watched as a gauge of the ECB’s resolve and capacity to continue making bond purchases, said Adam Cole, global head of FX strategy at RBC Capital Markets.
The ECB’s buying last in recent weeks has pushed down yields on Italian and Spanish debt in an attempt to keep funding costs of two of the largest economies in the euro zone from rising to high. Both countries plan to return to sell new bonds next week.
As for the shift towards riskier assets, it’s become harder to interpret moves in foreign-exchange markets because the two currencies that have long been considered among the safest — the Swiss franc and Japanese yen — have been trading based on localized concerns lately as officials have been more vocal and active in opposing their gains.
Versus the Swiss currency, the euro EURCHF +0.03% rose to 1.1370 francs, from 1.1341 francs late Friday.
Strategists noted that the Swiss National Bank intervened in the one-month forward market to sell francs versus euros, but the reported move had little lasting impact on the currency pair, which remains stuck in a narrow trading range.
The dollar USDJPY +0.04% bought 76.76 yen, up slightly from ¥76.39 in late trading on Friday. Japanese authorities also continue to suggest they don’t like the yen appreciating and may intervene, but have done little concrete to stem the currency’s gains, even as it touched a fresh high last week.
