MW: Dollar slips; Germany’s Ifo gauge boosts euro
Shared currency probes back above $1.33 level
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar mostly weakened Thursday, while the euro got a boost from a stronger-than-expected jump registered in a closely followed gauge of German business confidence.
The euro EURUSD +0.36% broke through resistance at the $1.33 level to trade above $1.3340, hitting its highest level against the dollar since mid-December. It remained at $1.3297 in recent action, up from $1.3246 in North American trading late Wednesday.
The Munich-based Ifo Institute’s business climate index jumped to 109.6 in February from 108.3 in January, easily trumping expectations for a reading of 108.8. Read more about Ifo results for February.
“The relative strength of Germany goes some way to explain the apparent resilience of the euro to the euro-zone crisis through most of last year and so far in 2012,” said Jane Foley, senior currency strategist at Rabobank International.
The strength of Germany and many other core euro-zone countries “in terms of current account position and debt and deficit/GDP ratios suggest that these countries would be maintaining much stronger currencies if they were operating outside” the realm of economic and monetary union, she said.
Capping the gains, the European Commission cut its forecast for euro-zone growth. The European Union’s executive arm said that the region is suffering a “mild recession” and that it now expects the region’s economy to shrink 0.3% in 2012 — a reversal from its November forecast calling for growth of 0.5%.
The revision puts the commission’s forecast move more in line with consensus expectations.
The ICE dollar index DXY -0.36% , which measures the U.S. unit against basket of major rivals, fell to 78.910 from 79.207 on Wednesday.
The British pound GBPUSD +0.30% changed hands at $1.5706, rebounding from $1.5673 late Wednesday. Sterling came under pressure on Wednesday after minutes of the Bank of England’s February policy meeting revealed some dissenting views in favor of a larger round of quantitative easing.
The dollar edged down against the Japanese yen USDJPY -0.09% to trade at ÂĄ80.15 from ÂĄ80.24 on Wednesday. The currency broke above the ÂĄ80 level on Wednesday to set a seven-month high, benefiting as U.S. debt yields rise.
The Australian dollar AUDUSD +0.59% traded at $1.0691, a gain of 0.6% on its U.S. counterpart.
The strong Ifo reading boosted overall risk appetite, giving the Aussie and other risk-oriented currencies a temporary lift, noted Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets in London.
The Aussie briefly came under pressure afterPrime Minister Julia Gillard called for a leadership vote, setting up an expected showdown for the Labor party leadership with Kevin Rudd. Gillard pushed Rudd, a former prime minister, out of office in a 2010 leadership battle. Read more.
Gillard is favored to prevail.
“Whatever the case, although uncertainty is never welcomed by FX markets, this has been a dysfunctional minority government with the latest twist not likely to have policy ramifications,” Cole said, noting the opposition Liberals hold a significant lead over the current government in the polls.
