MW:Dollar slips vs. euro, with focus on ECB operation
By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — The dollar weakened further against the euro Wednesday after strong U.S. and German economic data the previous day, with investors focused on the European Central Bank’s long-term refinancing operation (LTRO) later in the day.
The dollar index DXY -0.16% , a measure of the greenback’s performance against six major global currencies, fell to 79.654 from 79.871 in North America late Tuesday.
A depreciation of the dollar is usually seen as reflective of improving appetite for riskier assets among investors, as the currency often acts a safe haven in time of market anxiety.
The euro EURUSD +0.25% climbed to $1.3114 from $1.3079, as investors looked forward to the ECB’s three-year LTRO — a liquidity-easing operation that allows European banks to get cheap funds from the ECB by pledging a range of securities with the central bank. Read a blog post on the ECB’s LTRO.
The Wall Street Journal has dubbed the operation a “back-door” quantitative easing by the central bank, which allows the region’s private lenders to use the cheap funds to buy higher-yielding sovereign debt.
Michael Turner, a fixed-income and currency strategist at RBC Capital Markets, said the consensus for the three-year LTRO allotment was €250 billion ($328 billion). A higher-than-expected number would suggest that the European financial sector is “taking on risk at a time when it is being guided to do the opposite,” he said.
RBC rates strategists think that anything up to €250 billion would be positive, ensuring that “concerns should abate somewhat, whilst providing limited sign that unreasonable risks have been taken,” Turner said.
Among other major currency pairs, the British pound GBPUSD +0.05% rose to $1.5668 from $1.5663.
The Japanese yen, meanwhile, advanced, even after the Bank of Japan cut its economic outlook because of sluggish conditions abroad and an appreciating currency, and left interest rates unchanged in the 0 to 0.1% range. See report on Bank of Japan policy decision.
The dollar USDJPY -0.13% was changing hands for ÂĄ77.78, down from ÂĄ77.90 in North American trade.
The Australian dollar AUD +1.24% extended gains, fetching $1.0133 from $1.0062 earlier in the day, indicating investors were more willing to take risk.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
