Fears about EU members’ support weighs on shared currency
By William L. Watts and Michael Kitchen, MarketWatch
NEW YORK (MarketWatch) — The dollar rose more against the euro on Monday, pushing the shared currency under $1.26, after a weaker-than-expected reading on U.S. manufacturing turned stocks negative and supported relative safe havens including the greenback and Treasury bonds.
The euro lost ground earlier after Finland reportedly signaled it will block efforts to use the euro zone’s permanent rescue fund to buy distressed government debt.
The euro EURUSD -0.8387% fell to $1.2580 from $1.2658 in late North American trade Friday.
The dollar index DXY +0.37% , a measure of the U.S. unit’s performance against six major currencies, extended gains to 81.890, from 81.824 before the data and 81.658 Friday.
The euro fell under $1.26 more convincingly after the Institute for Supply Management’s U.S. manufacturing index for June unexpectedly contracted for the first time in almost three years. Read about ISM.
The Dow Jones Industrial Average DJIA -0.58% turned down 0.% and Treasury bonds extended gains, pushing yields lower. See more on Treasury bonds.
“Despite the decline of manufacturing’s importance to the U.S. economy, the ISM Manufacturing Index remains a premier economic indicator and a reading below 50 in June is incredibly, incredibly worrisome,” said Dan Greenhaus, chief global strategist at BTIG
Earlier, Reuters said Finland indicated that it and the Netherlands would stand in the way of any effort to use the European Stability Mechanism to buy bonds on the secondary market. Read about Finland.
“While further details were not forthcoming, it provides further evidence of hostility from northern Europe, one of the key hurdles for major policy breakthroughs in the euro zone,” said Chris Walker, currency strategist at UBS, in a note. “After the impressive rally on Friday, the question now is to what extent those gains can be sustained, and for how long.”
The euro surged more than 2% on Friday after European leaders indicated they would loosen rules to allow the rescue funds to purchase distressed bonds without requiring governments to submit to full bailout procedures. That helped bring down Spanish and Italian bond yields.
Officials also agreed to allow the ESM to directly recapitalize banks once a single, region-wide bank supervisor is in place, a move that would take the cost of Spain’s bank bailout off the government’s books. Read more on Friday’s currency action.
Walker said the scope for a sharp correction lower appeared limited with U.S. markets scheduled to close Wednesday for the Independence Day holiday and traders looking ahead to a European Central Bank rate decision on Thursday and U.S. nonfarm payrolls for June on Friday.
On the economic front, the Markit June purchasing managers’ index for the euro-zone manufacturing sector came in at 45.1, unchanged from the nearly three-year low set in May but up from an initial reading of 44.8. A reading of less than 50 indicates a contraction in activity.
The euro-zone unemployment rate rose to a record 11.1% in May from 11% in April, Eurostat reported. The figure matched expectations.
The ECB is expected to cut in its benchmark rate by a quarter-point to 0.75%. Read about expectations for the ECB and Bank of England..
The Japanese yen strengthened after the Bank of Japan’s quarterly tankan survey showed improved business sentiment in the April-June quarter. The dollar also extended its loss against the yen after the ISM report.
The dollar USDJPY -0.5881% fell to ÂĄ79.38, down from ÂĄ79.92 late Friday.
The British pound GBPUSD -0.2054% saw less movement, trading at $1.5684 compared with $1.5677, ahead of the Bank of England decision, also due Thursday.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles.
