Sterling suffers as 2 BOE members press for bigger QE
By William L. Watts and V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar gained ground versus most major rivals on Wednesday, climbing above the psychologically important 80-yen level versus the Japanese currency and edging higher versus the euro after data showed weaker-than-expected activity in the euro zone and China.
The ICE dollar index DXY +0.30% , which measures the greenback’s performance against a basket of six other currencies, rose to 79.233 from 79.023 in North America late Tuesday.
The euro EURUSD -.00% fetched $1.3241, down slightly from $1.3251.
Business activity across the euro zone contracted unexpectedly in February, according to a preliminary composite purchasing managers index for the region. Read about euro-zone PMI.
Fitch Ratings downgraded Greece to a C rating from CCC and reiterated that it will view a planned bond swap with private bondholders as a “distressed debt exchange” that would temporarily push Greece into restricted default.
Jeremy Stretch, currency strategist at CIBC in London, said risks surrounding the implementation of the Greek bailout plan approved by euro-zone finance ministers on Tuesday would likely continue to cap upside for the euro.
“For now, we are likely to remain captured within a $1.3180-$1.3280 range, with only a break of $1.3150 or the 2012 highs at $1.3322 signifying accelerated break-out risks,” he said.
The British pound GBPUSD -0.68% tumbled to $1.5676 from $1.5791 late Tuesday, sinking after minutes of this month’s Monetary Policy Committee meeting unexpectedly showed that members Adam Posen and David Miles pushed for a 75 billion pound increase in the Bank of England’s quantitative easing program.
A majority of members backed the £50 billion pound rise in asset purchases, which will bring the total stock of assets to £325 billion.
“The currency reaction to the BOE minutes reflected stops being triggered, rather than a distinctive change in tone,” said Lauren Rosborough, currency strategist at Societe Generale. “The vote was skewed towards more QE, but the minutes are more neutral than the vote belies: while not ruling out further QE, there was tentative optimism towards near-term growth and continued uncertainty further out.”
Against the Japanese unit, the U.S. dollar USDJPY +0.71% moved to ¥80.22 from ¥79.73, with the pair rising above the 80-level for the first time since August.
The yen has been on a downward slope recently against the greenback, which has risen 5.3% just in February so far, according to FactSet Research data.
But some analysts were skeptical the pace of the yen’s fall could be sustained.
Jens Nordvig, a currency strategist at Nomura, wrote in a report that the brokerage house was reluctant to call for a big yen-weakening move going forward, as Japanese capital flows point to only a gradual depreciation, and as U.S. and European monetary policies were likely to remain loose.
“The extraordinary yen support witnessed in [the fourth quarter of 2011] from large-scale repatriations from the euro zone is probably fading, and a more aggressive Bank of Japan will also make it hard for the yen to re-test recent levels of strength,” Nordvig said.
Regional economic data also were not inspiring, with the preliminary result of a survey by HSBC showing that China’s manufacturing activity contracted again in February. Read more about the HSBC China flash PMI.
