Weak PMI weighs on shared currency; Japan threatens intervention
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar turned back down against the euro on Monday, though it stayed in a tight range, following a report that Germany is willing to leverage Europe’s bailout fund to more than 1 trillion euros, or about $1.39 billion.
The greenback also headed back down slightly versus Japan’s yen despite a threat by Japanese authorities to intervene in currency markets.
The euro EURUSD +0.57% rose to $1.3907 from $1.3865 in North American trading late Friday.
The dollar index DXY -0.25% , which measures the U.S. unit against a basket of six major rivals, turned down to 76.241 from 76.404 on Friday.
The euro rose higher earlier in the session after European officials, including German Chancellor Angela Merkel and French President Nicolas Sarkozy, said they would complete a plan at a Wednesday summit meeting to deal with the euro-zone’s sovereign debt crisis that’s raising concerns about the stability of the region’s banks.
According to the Associated Press, German opposition leaders agreed to increase the strength of the European Financial Stability Facility after a briefing with Chancellor Angela Merkel. Read about bailout fund size.
The $1.4 trillion amount would be “a respectable size,” said Boris Schlossberg, director of currency research at GFT.
Support for the euro was undercut after data showed the Markit composite purchasing managers index for the region fell to 47.2 in October, signaling a further contraction in private-sector activity and marking the lowest reading since July 2009. See October euro-zone PMI data.
During Sunday’s summit, European leaders focused on technical details, as projected last week. Few traders had expected a big announcement to emerge from the meeting, but stakes are high for something big to be announced in two days.
“The weekend EU summit has clearly not solved the crisis,” said Jane Foley, senior currency strategist at Rabobank International. “However, bearing in mind the slow progress at which European politics tends to operate, there was a reasonable flow of news and sufficient progress to keep euro bears at bay.”
Leaders indicated agreement toward a plan to require banks to shore up capital, while ruling out using the European Central Bank to boost the European Financial Stability Facility’s firepower. Negotiations are also continuing over calls to require private-sector bondholders to accept larger haircuts on Greek debt holdings beyond the 21% write-downs agreed at a July 21 summit. Read about EU summit meeting
While they still have a long way to go before an agreement, market participants appear willing to give EU leaders the benefit of the doubt for now, Foley said. But a lack of clarity regarding Greek haircuts and EFSF leverage beyond Wednesday would likely trigger disappointment, she said.
One big concern is if the EFSF would be big enough to support Italy or Spain, should that become necessary, said strategists at Commerzbank. Also, plans for a much deeper write-downs from Greece’s private investors may not be accepted by bond holders.
“In that case, the politicians’ attempt to disguise the Greek default with the help of voluntary renunciations would have failed,” Commerzbank analysts wrote in a report.
Japanese intervention imminent?
Against the yen, the dollar USDJPY -0.14% changed hands at ¥76.10, little changed from ¥76.17 on Friday. During Friday’s trade, the dollar fell to a new record low versus the Japanese currency.
The dollar temporarily bounced higher versus the yen in Asian trading after Japanese Finance Minister Jun Azumi raised the prospect of imminent intervention to curb the yen’s rise.
“The Japanese authorities are starting to express their lack of patience with a strong yen,” said Kathleen Brooks, research director at Forex.com. “This type of verbal intervention can be a prelude to actual intervention, so watch out as the risk of intervention-fueled volatility is rising sharply for the yen and the Swiss franc, which has also started appreciating again against both the dollar and the euro.”
Still, analysts questioned whether intervention would be able to stem the yen’s rise. Read more: Yen may extend gains despite intervention threat.
On Monday, the euro EURCHF +0.11% rose 0.4% against the Swiss franc, while the U.S. dollar USDCHF -0.39% gave up an earlier advance on Switzerland’s currency.
The British pound GBPUSD +0.39% bought $1.5960, turning back up from $1.5941 on Friday.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is a reporter for MarketWatch in Frankfurt.
