MW: Dollar off on Spain budget, adds to quarterly loss
Japan’s yen and the British pound hit key levels this month
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch)—The U.S. dollar retreated Friday, adding to losses for the first quarter, and the euro gained as euro-zone finance ministers boosted the size of the region’s bailout fund and as Spain released its budget plan.
The ICE dollar index DXY -0.17% , which measures the greenback against a basket of six other currencies, fell to 78.896, down from 79.176 late Thursday.
“Month-end, quarter-end and Japanese fiscal year-end flows continue to dominate, with U.S. dollar weakness and Japanese yen strength the main themes,” said Sue Trinh, strategist at RBC Capital Markets.
The dollar index edged up 0.2% this month, but is still down 1.7% this year.
The euro EURUSD +0.1079% rose to $1.3347, up from $1.3294 in late North American trading on Thursday.
For March, the shared currency has advanced 0.2%, adding to its 3.1% year-to-date gain.
The euro held gains as Spanish officials said the government will cut 27 billion euros ($36 billion) from its budget this year. In anticipation, Spanish workers staged a nationwide strike over austerity measures on Thursday. Read more on Spain’s budget.
For the month, the big news from the U.S. came a few weeks ago: the Federal Reserve’s policy statement. The central bank led investors to believe it’s less inclined to continue effectively easing by buying more bonds, which was seen as a negative for the dollar. However, more recent comments from Fed officials have been more dovish.
Also aiding the euro, the European Central Bank’s unlimited long-term refinancing operations effectively stabilized the region’s banking system and gave banks funds to buy sovereign debt, bringing down yields.
That’s not to say the European debt crisis has disappeared, as austerity measures being forced upon several countries in the euro zone, including Spain, are seen as part of why the region’s in a recession. That’s still seen as a major negative for the euro. See story on the dollar’s outlook.
Another way that Europe has tried to control its debt crisis—in the hopes of keeping bailouts confined to Greece, Ireland and Portugal and avoid things getting out of hand for Spain and Italy—is to show the region has put sufficient bailout funds aside.
Along these lines, euro-zone finance ministers earlier Friday agreed to boost the lending capacity of the region’s rescue fund to 700 billion euros, up from €500 billion previously.
The euro held gains even though earlier this week reports said the fund may be boosted to €940 billion.
The fact that the amount is at the bottom of the range expected “means that European nations are still trying to minimize their commitments, which will be negative for the euro,” said Kathy Lien, director of currency research at GFT. She added that €500 billion in new funds wouldn’t be enough if Italy and Spain need bailouts.
The next question is whether the higher commitment from Europe will be enough to increase the level of committed aid from the International Monetary Fund.
The key question will be whether the euro-zone is seen doing enough “to appease those in the international community who think that Europe needs to do more to help itself before it can ask for further support from elsewhere (principally the IMF),” said Simon Smith, chief economist at FxPro in London, in emailed comments.
Also Friday, the dollar USDJPY -0.17% lost ground to the Japanese yen, slipping to ÂĄ82.26 from ÂĄ82.45 on Thursday.
A couple of weeks ago, the dollar hit its highest level against the yen since last April.
This month, the dollar rose 1.1% against the yen, adding to its gain of 6.8% this year.
The euro has even gained sharply against the yen: up by 1.3% this month and by 10% this year.
The British pound GBPUSD +0.17% pressed above the $1.60 level for the first time since November and lately traded at $1.5987, compared with $1.5940 Thursday.
Sterling has advanced by 0.5% in March against the dollar, and by 2.9% in the year to date.
Against the euro, the pound has slipped 0.3% this month, but it’s up 0.2% so far this year.
