Dollar tumbles as investors embrace risk; sterling also rallies
By William L. Watts and Virginia Harrison, MarketWatch
FRANKFURT (MarketWatch) — The euro jumped versus a broadly weaker U.S. dollar as optimism over Europe’s ability to get the sovereign-debt crisis under control contributed to a boost in investors’ appetite for risk across global markets, strategists said Wednesday.
The euro EURUSD +0.92% reversed earlier losses to stand at $1.3776, up strongly from $1.3570 in North American trade late Tuesday.
The Slovak parliament rejected a plan to enhance the powers of a €440 billion ($600 billion) bailout fund, after the U.S. market closed Tuesday. While not unexpected, the rejection disrupts the euro zone’s attempts to contain its simmering debt crisis. Read more about the Slovak vote
The news initially put pressure on the shared currency, but the euro eventually reversed on expectations that the setback won’t last long.
“We’re in a risk-on mode and that’s continued to benefit the euro,” said Jeremy Stretch, currency strategist at CIBC in London.
“There’s a sense that perhaps the market got carried away with the Slovak vote,” he said, adding that investors are coming to realize it won’t derail efforts to revamp the European Financial Stability Facility.
The “no” vote, which also served to topple the Slovak government, appeared driven largely by domestic political considerations. The outgoing government is expected to hold talks with opposition leaders that are expected to result in approval of the EFSF changes in a repeat vote as early as this week.
The dollar index DXY -0.72% , which measures the greenback against a basket of six other currencies, fell to 76.934 from 77.549 late Tuesday.
Elsa Lignos, senior currency strategist at RBC Capital Markets, said a “big capitulation” by dollar longs has boosted most other Group of 10 currencies while crushing the greenback across the board.
The main event for markets will be the release of the minutes of the Federal Reserve policy meeting held in September at 2 p.m. Eastern, she said.
“We will be looking for detail on whether any members of the committee favored a cut in the interest on excess reserves and color on the prospects of a QE [quantitative easing] 3 program, which we believe would likely come in the form of a mortgage-buying program,” Lignos said.
The British pound GBPUSD +0.97% traded at $1.5761, up from $1.5602 late Tuesday.
The Office for National Statistics said total unemployment in the three months ending in August jumped by 114,000 to a total of 2.57 million people, the highest since the three months ending in October 1994.
Nevertheless, the pound benefited from rising risk appetite, while the data showed number of persons claiming jobless benefits in September rose by a smaller-than-forecast 17,500, Stretch noted. Read Market Pulse about British unemployment.
The dollar USDJPY +0.19% also bought 76.70 Japanese yen, little changed from ¥76.67 in late trading Tuesday, after data showed Japan’s core machinery orders rose sharply in August. Read more about Japan’s machinery orders.
William L. Watts is a reporter for MarketWatch in Frankfurt.
