Slovakia unlikely to approve changes amid coalition split
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar traded higher against the euro on Tuesday, with Europe’s 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 -0.27% , fell to $1.3594, down from $1.3644 in North American trade late Monday.
The euro rose by the most in two weeks on Monday, a day when volume may have been down with U.S. bond markets and Japan closed for holidays, after France and Germany pledged to support Europe’s banks. Read about euro’s gains Monday.
The dollar index DXY +0.26% , which measures the greenback against a basket of six currencies, traded at 77.843, up from 77.581 Monday.
Slovakia’s Freedom and Solidarity party 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 said, 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.”
EURUSD 1.3607, -0.0037, -0.2701%
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U.S. stock benchmark indexes came under pressure due to the delayed vote, reversing some of Monday’s huge gains. Treasury prices also fell, catching up after markets were closed Monday. The moves suggest traders are finding enough comfort shifting into riskier assets like stocks and commodities and away from the relative safe havens of the U.S. dollar and Treasury bonds. Read more about Treasury bonds.
“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 in a research memo.
The euro slipped a little more after Greece’s troika of international lenders — the European Union, International Monetary Fund and European Central Bank — said Athens is likely to receive an 8 billion euro ($10.9 billion) tranche in early November, avoiding a near-term default.
The lenders as warned that Greece’s 2011 fiscal target is no longer within reach, which will put more pressure on the government to take additional budget-cutting measures in 2013-14, noted David Song, a currency analyst at Daily FX.
Clearing that hurdle would shift a greater focus on calls for private bondholders to bear larger writedowns on Greek government debt. See story on Greek aid.
The British pound GBPUSD -0.22% changed hands at $1.5624, down from $1.5671 Monday.
The dollar USDJPY -.00% bought 76.71 yen, from ¥76.70 in late trading Monday when markets were closed for Sports Day.
On Tuesday, Japan’s August current-account data showed a surplus of 407.5 billion yen ($5.3 billion), a drop of 64.3% year-on-year. The surplus came in below the ¥446.9 billion economists had been expecting, according to Dow Jones Newswires.
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.
