Slovakia unlikely to approve changes amid coalition split
By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The dollar traded higher against the euro on Tuesday, with the shared currency giving back some of the previous day’s gains after Slovakia’s parliament appeared unlikely to approve measures needed to revamp the euro zone’s 440 billion euro bailout fund.
The euro EURUSD -0.36% , which rose sharply against the dollar on Monday after France and Germany pledged to support Europe’s banks, traded at $1.3602, down from $1.3644 in North American trade late Monday.
Slovakia’s Freedom and Solidarity party, or SaS, on Tuesday said it won’t participate in a vote later in the day on the EFSF changes. The move by the junior coalition partner will likely leave the ruling coalition without votes needed to win passage and could lead to the fall of the government after Prime Minister Iveta Radicova tied the vote to a confidence motion in the government. Read more about the Slovak vote.
Strategists note, however, that opposition parties have indicated they would support the EFSF changes in a later vote following the dissolution of the government.
“Should the vote fail, therefore, it is highly likely to be followed by a second, successful vote and the rapid dissolution of parliament,” said Adam Cole, global head of FX strategy at RBC Capital Markets. “This could happen within a matter of days and possibly as early as today. Euro weakness on an initial ‘no’ vote should therefore be faded.”
The dollar index DXY +0.20% , which measures the greenback against a basket of six currencies, traded at 77.770, up from 77.581 in late North American trading on Monday.
“U.S. dollar sensitivity to risk aversion has increased more recently, and to achieve further gains it will require risk aversion to intensify, which in turn will require growth worries to deepen and the euro-zone crisis to escalate,” said Credit Agricole currency strategists.
The British pound GBPUSD -0.25% changed hands at $1.5635, down from $1.5671 Monday.
The dollar USDJPY -0.06% bought 76.61 yen, from ¥76.70 in late trading Monday when markets were closed for Sports Day.
On Tuesday, Japan released current-account data for August, which showed a surplus of 407.5 billion yen ($5.3 billion), a drop of 64.3% year-on-year. The August surplus came in below the ¥446.9 billion economists had been expecting, according to Dow Jones Newswires.
William L. Watts is a reporter for MarketWatch in Frankfurt.
