By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The dollar consolidated Thursday after taking a beating earlier in the week, gaining on the euro as investors weighed the European Union’s calls to boost banks’ capital.
The dollar index DXY +0.21% , which measures the greenback against a basket of six currencies, stood at 77.210, up from 76.977 late Wednesday.
The euro EURUSD -0.38% edged down to $1.373 from $1.3796 in late North American trading on Wednesday.
The single currency had jumped in Wednesday’s trading, as currency traders played off reports that Slovakia was on track to approve its share of the expanded European bailout fund and after European Commission President Jose Manuel Barroso unveiled a plan aimed at recapitalizing Europe’s banks. Read more on Barroso plan.
However, the Financial Times reported that major European banks say they would rather sell assets than raise new capital to meet the EU’s call for higher capital ratios — a move that could feed a credit crunch in the fragile euro-zone economy.
“Market optimism toward bank-recapitalization plans has been steadily building and this point illustrates the complications of policy implementation,” said Chris Walker, currency strategist at UBS.
A renewed warning by the European Central Bank on what it sees as the dangers of requiring private bondholders to take a hit on sovereign debt was also credited with undercutting the euro, analysts said. Read Market Pulse about the ECB’s warning on private-sector involvement.
And Italy further added to the euro-zone’s economic drama as Prime Minister Silvio Berlusconi called for a confidence vote after a routine budget measure failed to win passage in parliament earlier this week. Read Market Pulse about Italy’s confidence vote.
Meanwhile, the minutes from the Federal Reserve’s latest interest-rate setting committee meeting, released later in the global trading day on Wednesday, showed that members were concerned about the strength of the U.S. economy into the end of the year. Read more on Fed minutes.
Still, as strategists at BNP Paribas noted, “the prevailing view that things are not that bad in the U.S. economy has yet to be challenged by incoming data.”
They added that the Federal Open Market Committee’s September meeting minutes, “while suggesting that the Fed is deeply concerned about the outlook, indicate that the economy and financial stresses would need to worsen noticeably in their eyes before quantitative easing is reactivated.
“It remains our view that this will transpire, but the point is that with investors very flush with cash, the carrot of [a third round of quantitative easing] is not at this stage required to push money back into riskier assets.”
Also Thursday, sterling GBPUSD -0.45% , traded at $1.5688, down from $1.5761 late the previous day. Like the euro, the pound had benefited from renewed appetite for riskier assets on Wednesday.
The dollar USDJPY -0.55% slipped against Japan’s yen, going for ¥76.84 against ¥77.31 in late trading on Wednesday.
The Australian dollar AUDUSD -0.08% gained 0.1% to $1.0156, trading firmly back over parity with the greenback, as investors parsed stronger-than-expected jobs figures Down Under. Read more on jobs figures.
William L. Watts is a reporter for MarketWatch in Frankfurt.
