Sterling also scores gains; dollar bucks bearish trend against yen
By Sue Chang and Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — The euro jumped Wednesday as optimism over Europe’s ability to get the sovereign-debt crisis under control whetted investors’ appetite for risk, leaving the U.S. dollar broadly weaker.
The euro EURUSD +1.34% rose to $1.3806 from $1.3670 in North American trading late Tuesday.
The shared currency recovered in response to reports that Slovakia’s political parties reached a deal that would pave the way for the parliament to approve enhancements to the European Financial Stability Facility, only hours after rejecting the plan. Read more on latest Slovakia developments.
The renewed backing of the deal allows Europe to move forward and fueled demand for assets perceived as carrying greater risky, noted Ashraf Laidi, chief executive of Intermarket Strategy.
“We’re in a risk-on mode and that’s continued to benefit the euro,” said Jeremy Stretch, currency strategist at CIBC in London.
EU’s Barroso, dollar longs
Analysts also had awaited a plan aimed at recapitalizing Europe’s banks from European Commission President Jose Manuel Barroso.
Barroso said government officials need to strengthen firewalls and maximize the capacity of the EFSF. Read more on Barroso’s comments.
“It’s bereft of details, but I think the big guns will wait until there is an overall agreement,” said Andrew Busch, global currency and public policy strategist at BMO Capital Markets.
The dollar index DXY -0.92% , which measures the greenback against a basket of six other currencies, fell to 76.940 from 77.549 late Tuesday.
A “big capitulation” by dollar longs has boosted most other Group of 10 currencies while pressuring the greenback across the board, said Elsa Lignos, senior currency strategist at RBC Capital Markets.
The main U.S. event for the foreign-exchange market will be the release at 2 p.m. Eastern time of the minutes of the two-day Federal Reserve meeting on interest rates and monetary policy that took place last month.
That’s when the Fed announced a plan, known as “Operation Twist,” to buy longer-dated debt and sell its shorter-term holdings.
“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.
U.K. pound, Japanese yen
Also Wednesday, the British pound GBPUSD +1.21% benefited from revived interest in risk, buying $1.5759 versus $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. The data showed that the number of persons claiming jobless benefits in September rose by a smaller-than-forecast 17,500, CIBC’s Stretch noted. Read about British unemployment.
The dollar turned up against the Japanese yen, which tends to also lose out when investors shift to riskier assets.
The dollar USDJPY +0.98% bought ¥77.34, up from ¥76.67 Tuesday. Data showed Japan’s core machinery orders rose sharply in August. Read more about Japan’s machinery orders.
“The rise in U.S. yields is the main reason why the dollar is performing so well against the yen and yet so poorly against the euro and other currencies,” noted Kathy Lien, director of currency research for GFT.
Yields on benchmark 10-year Treasury notes rose to the highest in more than a month. Japan is one of the largest foreign investors in U.S. debt.
Sue Chang is a MarketWatch reporter in San Francisco.
Bill Watts in Frankfurt contributed to this report.
