Germany warns against ‘dreams’ of quick fix for debt crisis
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar rose versus the euro and most other major currencies Monday after German Chancellor Angela Merkel’s spokesman played down expectations that European leaders will finalize a comprehensive solution to the euro-zone debt crisis at a summit meeting this coming weekend.
The dollar index DXY +0.49% , which measures the greenback against a basket of six other currencies, rose to 77.014 from 76.645 in late North American trading on Friday.
The euro EURUSD -0.70% fell to $1.3774 from $1.3875 on Friday.
Against the Japanese yen, the shared currency slipped almost 1% to 106.14 yen EURJPY -0.69% .
The dollar extended its gain after Steffen Seibert, Merkel’s spokesman, warned against “dreams” that European leaders will resolve all the issues surrounding the debt crisis at a summit meeting in Brussels on Sunday.
“The chancellor has pointed out that dreams building up that this package will mean everything will be solved and over by Monday cannot be fulfilled,” Seibert said, according to Reuters. He said leaders are working on a “long path” that could extend well into 2012. Read about Germany’s warning.
Pressure on euro, equities
Seibert’s remarks weighed on the euro as well as risk-oriented assets such as equities. U.S. stock-index futures gave up modest gains and European stocks turned mixed.
The euro made sharp gains on Friday, adding to a weekly rebound, ahead of a weekend meeting of the Group of 20 finance ministers and central bankers. That meeting saw top European officials pledge to reveal a plan by Oct. 23 to try to solve Europe’s troubles. Read about euro’s gains last week.
“We agree [with Seibert] and believe that expectations for a ‘comprehensive solution’ have perhaps become slightly stretched,” said Chris Walker, currency strategist at UBS.”Policy makers are likely to try and play down these expectations over the next few days, but the risk of disappointment is now significant.”
The recent rally in the euro, stocks and some commodities”has been driven by expectations that Europe would solve the crisis quickly and efficiently, something it hasn’t been able to do for the last 18 months,” said Kathleen brooks, research director at Forex.com
The international community has given the European authorities eight days to come up with a package of reforms to boost the size of the European Financial Stability Facility, deal with Greece and recapitalize Europe’s banking sector, she noted.
The dollar held gains after a pair of reports on manufacturing conditions in the U.S. Industrial production rose 0.2% in September, but an index of manufacturing activity in the New York region for this month was weaker than expected. See story on New York manufacturing index.
“Eight days is far too optimistic in our view,” Brooks said.
The British pound GBPUSD -0.34% fell to $1.5763 from $1.5818 late Friday.
Against the yen, the dollar USDJPY -0.01% bought 77.08 yen, down from ¥77.25 late Friday.
