Talk of new Swiss franc peg weighs on the euro versus the dollar
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar turned up versus the euro Tuesday as the shared currency came under pressure analysts attributed to speculation that the Swiss National Bank might change its peg for the Swiss franc against the euro.
Earlier, the euro gained as investors appeared more willing to shift into riskier assets like stocks and the euro after Greece made a debt payment, even after Italy’s credit rating was downgraded a notch by Standard & Poor’s.
Since then, U.S. stocks traded in a choppy pattern and Treasury prices gained, indicating investors’ appetite for risk was short-lived.
The euro EURUSD +0.00% turned down slightly to $1.3669, from $1.3685 late-afternoon North American trading on Monday and after temporarily topping $1.37.
The dollar index DXY -0.30% , which tracks the U.S. unit against a basket of six currencies, turned up to 77.171, versus 77.089 Monday.
The euro declined after talk that the Swiss National Bank would change its near-peg for the Swiss franc. The central bank declined to comment, according to Dow Jones Newswires.
The euro EURCHF +0.62% rose from right around the 1.20 franc peg to as high as 1.2213 francs, before settling back to 1.2143 francs, up about 0.7% on the day.
“Talk of the Swiss National Bank re-pegging euro-franc to 1.25 from 1.20 has sent the currency pair up 80 pips in a heartbeat,” said Kathy Lien, director of currency research for GFT.
Later in the session, Greek Finance Minister Evangelos Venizelos is scheduled to continue a conference call with inspectors from the European Union, the International Monetary Fund and the European Central Bank over its next tranche of aid. The finance ministry said talks Monday night were “productive.”
“While the results of this phone call also likely to be the key event of the day, we continue to suspect that the rapid deterioration in euro-zone economic data and the potential for higher borrowing costs due in part to rating downgrades as likely to be major headwinds for the euro,”said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
“After all, the key ingredient that appears to be absent from many of the talks and solutions about how to mitigate the euro zone sovereign debt is economic growth, which is unlikely given tough packages implemented by many of the periphery countries,” he wrote in a note.
Michael Turner, fixed-income and currency strategist at RBC Capital, said the euro’s rebound followed talk of Italian-bond buying by the European Central Bank and reports that the Greek government fully paid 769 million euros in coupon payments that were due Tuesday. Read about Greek coupon payment, T-bill sale.
The euro had tumbled during Asian trading after S&P late Monday cut its long-term sovereign credit ratings on Italy by one notch, to A from A-plus, and left the country’s ratings on negative outlook. Read more about the Italian downgrade.
Also Tuesday, a smaller-than-expected decline in the German ZEW gauge of investor sentiment helped buoy the shared currency, Turner said. Read more on. ZEW decline.
The dollar was also only minimally affected by U.S. data showing that housing starts fell more than forecast in August but that building permits unexpectedly rose. Read about housing starts.
U.S. Fed meeting starts
Currency traders are also positioning for what the Federal Reserve will say when its two-day policy meeting ends Wednesday afternoon.
Many anticipate that the Federal Open Market Committee will announce a plan to extend the maturity of its bond portfolio. That would have little impact on the dollar because it doesn’t entail increasing the money supply, which would devalue the currency. Read more about FOMC and economists’ views on policy options.
“We expect profit taking on long U.S. dollar positions going into the FOMC announcement,” said Kathy Lien, director of currency research for GFT.
Against the Japanese yen, the dollar USDJPY -0.07% edged up to buy 76.58 yen, from ¥76.54 Monday.
The British pound GBPUSD -0.03% changed hands at $1.5694, from $1.5706.
The Australian dollar AUDUSD +0.59% rose 0.9% versus the U.S.unit to $1.0268. Read more on Australian dollar, RBA.
The minutes of the latest meeting of the Reserve Bank of Australia’s rate-setting committee, released Tuesday, showed committee members found the international outlook significantly more clouded since their previous meeting
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is a reporter for MarketWatch in Frankfurt. Sarah Turner in Sydney contributed to this report.
