By William L. Watts and Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar gained against the euro on Tuesday, following a warning from Moody’s Investors Service that France’s Aaa credit rating could be at risk.
A slower pace of growth in China and increasing doubts about European leaders’ ability to deliver a comprehensive solution to the euro-zone debt crisis at an upcoming weekend summit also weighed on the euro.
The euro EURUSD -0.26% slipped to $1.3708 from $1.3741 in North American trade late Monday.
Versus the Japanese yen, the 17-nation shared currency fell to ¥105.28 EURJPY -0.44% , down from ¥105.53.
The dollar index DXY +0.13% , which measures the greenback against a basket of six major rivals, rose to 77.307 from 77.162 on Monday. The dollar tends to benefit from safe-haven flows when risk aversion is on the rise.
Moody’s warned late Monday that France’s Aaa rating, which remains on stable outlook, could eventually come under pressure amid the toll on the nation’s public finances as a result of the global financial crisis.
European leaders have rejected the speculation that France could lose its top-tier rating, said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.
It “could be likened to Groundhog Day, as we [had] exactly the same process as a year ago, except the potential downgrades have shifted from Italy and Spain to France,” he said.
Earlier, a report that showed China’s economy grew at a slower pace in the third quarter also weighed on investors’ willing ness to move into riskier assets. Read about China’s third-quarter GDP.
“The risk rally is definitely running out of steam as high-beta currencies ran into their second straight day of liquidation sparked by weaker-than-expected GDP readings from China and continuing uncertainty over the efficacy of policy solutions that will be presented at an upcoming EU summit on the sovereign debt crisis,” said Boris Schlossberg, director of currency research at GFT.
U.K. pound, inflation
The British pound GBPUSD -0.19% fell to $1.5735 from $1.5757.
The euro EURGBP -0.07% lost 0.2% versus sterling to buy 87.12 pence.
Sterling extended its loss versus the dollar after the Office for National Statistics said annual consumer price inflation accelerated to a 5.2% rate in September from 4.5% in August, matching a record high set in September 2008. Economists had forecast a rise to 4.9%. Read about British inflation.
That leaves the inflation rate well above the Bank of England’s 2% target. But the central bank’s Monetary Policy Committee earlier this month kicked off a second round of quantitative easing amid expectations inflation will fall back sharply in coming months as temporary factors, such as an increase in the value-added tax, drop out of year-on-year comparisons.
“We could see inflation rise further in October, up to 5.4% or so, but thereafter it should fall sharply. The VAT hike to 20% earlier this year will fall out of the annual comparison from January, while the weak growth environment suggests that rising inventory levels will encourage price discounting from corporates,” said James Knightley, an economist at ING Capital, adding that steep falls in commodity prices should add to downward pressure on inflation over the next year.
Against the yen, the dollar traded at ¥76.80 USDJPY -0.07% , little changed from ¥76.81 on Monday.
