MW: Euro drifts higher as finance ministers to meet
By Myra P. Saefong and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) — The euro edged higher against the dollar Monday after languishing near a two-year low last week as traders awaited a meeting of euro-zone finance ministers as well as testimony by European Central Bank President Mario Draghi before a European Parliament committee.
The euro EURUSD +0.1613% , which dropped as low as $1.2265 in Asia earlier Monday, fetched $1.2295 in recent trade, up from $1.2278 in North America late Friday.
Euro-zone finance ministers are set to meet late Monday afternoon in Brussels.
“Two key issues likely feature prominently on [the] meeting’s agenda: the Spanish bank bailout and the renegotiations of the Greek MOU [Memorandum of Understanding],” said Valentin Marinov, a currency strategist at Citigroup, in a note.
Citi economists expect “very little progress” at the meeting, however, which could leave investors “concerned that the euro-zone officials are failing to grasp the urgency,” he said.
The June EU summit saw leaders agree to allow direct recapitalization of ailing banks through the permanent European Stability Mechanism once a euro-zone-wide banking supervisor is in place and to clear the way for purchases of distressed government bonds by the region’s rescue funds.
But analysts warned of further downside potential for the euro.
“It’s clear that the positive vibes created by the [June] EU summit have faded already, although it is fair to say that the backdrop of negative data-flow from the U.S. has probably helped to lift the general mood of pessimism. … We suspect that the ECB’s easing steps last week will help push euro/dollar on toward our $1.15 target,” said Steven Barrow, currency and fixed-income strategist at Standard Bank in London.
Reluctance by Finland and the Netherlands to allow bond purchases have since helped sap sentiment, strategists said. Spain’s 10-year bond yield ES:10YR_ESP +1.13% pushed back above the 7% level Monday morning, fully undoing the yield drop that had initially followed the summit agreements. Read about Europe markets.
The ICE dollar index DXY +0.01% , which measures the greenback’s performance against a basket of six other major currencies, including the euro, edged lower to 83.297, from 83.359 late Friday.
Turning pessimistic
“Over the last several months, the market has evolved into a state of constant speculation as to the next calendar event, the next non-farm payrolls number, the next [European Central Bank] meeting, then the next Fed meeting, then the EU summit, then ... and on it goes,” said analysts at The Royal Bank of Scotland, in a note Monday.
“Suffice to say that the market’s current mood, which is the mood of several months that have gone by, is one of hunkering down for a tomorrow that never comes,” they said.
In the aftermath of policy announcements from the Federal Reserve, the Bank of England and the ECB, “there now appears little on the monetary-policy front to lift investor sentiments,” he said, in a note.
“The decision by [People’s Bank of China] policy makers to cut deposit and lending rates for the second time in less than a month appears to have raised, rather than dampened, concerns surrounding global growth outlook,” Myers said.
He said that in the absence of any surprise European fiscal-policy announcement this week, currency markets should shift back convincingly into “risk-off” territory.
Also this week, investors will likely focus on the release of the minutes from the June 20 Federal Open Market Committee meeting as well as the outcome of the regular Bank of Japan policy meeting, Marinov said.
A “disappointing Eurogroup meeting combined with unchanged BOJ policy stance could result in further escalation in the euro-zone debt risks and further tightening in EUR-JPY rate spread,” he said.
Against the Japanese currency, the dollar USDJPY -0.02% traded at 79.64 yen, little changed from around ÂĄ79.65 late Friday..
Among other major currency pairs, the British pound GBPUSD +0.15% was fetching $1.5501, up from $1.5482, while the Australian dollar AUDUSD -0.25% was changing hands for $1.0177, slipping from $1.0206.
Myra Saefong is a MarketWatch reporter based in San Francisco.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Phani Kumar in Hong Kong contributed to th is report.
