Worries over divisions on Greek collateral undercut euro
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar gained ground versus most major rivals, while the euro slipped as investors eyed a meeting of euro-zone finance ministers, also attended by U.S. Treasury Secretary Timothy Geithner, in Poland.
The meeting “will be watched for any signs of progress on more policy steps to deal with the crisis. The most immediate issue is the Finnish collateral question, and progress son this may be needed if the euro is to advance further,” said Adrian Schmidt, currency strategist at Lloyds Bank in London.
A spokeswoman for Finnish Finance Minister Jutta Urpilainen said Friday that a resolution of the dispute over Finland’s demand for Greek collateral in return for Helsinki’s participation in the second Greek bailout agreed to by euro-zone leaders in July is unlikely on Friday, Dow Jones Newswires reported. Read Euro-zone finance chiefs meet, Geithner pops in
The euro EURUSD -0.50% slipped to $1.3794 against the dollar, little changed from $1.3797 on Thursday.
The 17-nation shared currency jumped Thursday after the European Central Bank, in coordination with other major central banks, announced it would provide additional, collateralized dollar to banks through three tenders designed to meet liquidity needs through the end of the year.
The action helped calm fears of an imminent dollar-funding crunch as banks grow wary of lending to each other amid fears over exposure to Greek sovereign debt.
But analysts warned that the measure, while providing a welcome backstop, addresses only the symptoms of the long-running European debt crisis.
“To keep markets orderly and banks from failing across the EU, we’ll eventually need to see a sufficiently large package/commitment to stop the chronic return of funding difficulties, default risks, defunct regional bond markets (the EU effectively ceases to function if Italy can’t sell/roll its debt),” said John J. Hardy, currency strategist at Saxo Bank, in emailed comments.
For now, investors will want to see whether the EU is ready to move toward more fiscal integration or continue to play for time.
The dollar index DXY +0.46% , which measures the greenback against a basket of six major rivals, rose to 76.632 from 76.259 in North American trade late Thursday.
The British pound GBPUSD +0.01% slipped to $1.5792, down slightly from $1.5808.
The dollar traded at 76.70 versus the Japanese yen, little changed from ¥76.67 on Thursday.
William L. Watts is a reporter for MarketWatch in Frankfurt.
