Australia lowers rates, Bank of England extends liquidity facility
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The euro edged lower on Tuesday, as traders reacted to news that Standard & Poor’s put 15 euro-zone countries on a negative “credit watch” late in the prior session.
The euro EURUSD -0.17% traded at $1.3369 compared with $1.3386 in North American trade late Monday.
The dollar index DXY +0.14% , which measures the U.S. unit against a basket of major rivals, traded at 78.702 compared with 78.654 late Monday.
“Although markets reacted to the S&P news by selling risk, on second thoughts the markets may have decided that AA-plus is the new AAA,” said Kathleen Brooks, research director at Forex.com. “Sentiment may have been boosted by some fairly calm words from European politicians; rather than invoke their ire, yesterday’s move appears to have concentrated minds on the job at hand: agreeing far-reaching structural changes to the currency bloc at this week’s EU [European Union] summit.”
The dollar USDJPY -0.07% was little changed at 77.78 Japanese yen.
The move by S&P killed a risk rally that had been fueled in part by a pledge by German Chancellor Angela Merkel and French President Nicolas Sarkozy to quickly seek a new treaty that would automatically impose sanctions on violators of the euro zone’s fiscal rules.
“The impact of the move comes from its timing — just when Sarkozy and Merkel were trying to conjure up yet another rabbit from their hat to save the euro,” said Kit Juckes, head of foreign exchange at Societe Generale. “The positive mood created by comments over the weekend and yesterday has been replaced by renewed gloom.”
The warning applied to triple-A Germany and France and all other euro members other than Cyprus, which was already on negative watch, and Greece, whose CC rating already implies a high probability of default.
Australia, U.K.
The Australian dollar AUDUSD -0.34% fell 0.3% versus its U.S. counterpart to change hands at $1.0227.
The Reserve Bank of Australia, as expected, cut its key lending rate by a quarter of a percentage point to 4.25%, citing worries about Europe’s sovereign debt crisis and moderating domestic inflation worries. Australia cuts rates, citing global growth fears
“Despite the RBA rate cut, AUD/USD remains the highest yielding currency pair in the G-20 universe and as such will continue to trade in sync with risk flows even as its rate advantage compresses slightly,” said Boris Schlossberg, director of currency research at GFT.
The British pound GBPUSD -0.22% changed hands at $1.5622, from $1.5637 late Monday. It took little direction from the Bank of England’s announcement that it would extend its lending facility for banks to mitigate any risk from a sterling liquidity crunch.
