Shared currency boosted as Spain, Italy short-term yields plunge By William L. Watts and V. Phani Kumar, MarketWatch FRANKFURT (MarketWatch) — The dollar traded lower versus most major rivals Friday as investors showed increased risk appetite ahead of sensitive U.S. nonfarm-payrolls data, while the euro bounced as the short end of the Spanish and Italian government bond markets rallied. The ICE dollar index DXY -0.49% , which measures the currency against a basket of six major rivals, fell to 83.29 from 83.32 in North American trade late Thursday. The WSJ dollar index XX:BUXX -0.36% , which gauges the greenback’s moves against some of the other heavily traded global currencies, dropped to 71.87 from 72.2. A day after the European Central Bank disappointed markets by not meeting expectations for bold measures to ease the region’s debt crisis, the euro EURUSD +0.5266% rebounded to $1.2260 from $1.2180. “It appears that markets are choosing to reassess their initial reaction to yesterday’s ECB decisions and decided that things are not so bad after all,� said Geoffrey Yu, strategist at UBS. Bonds rally Spanish and Italian bonds, European stocks, Wall Street and the euro all came under pressure Thursday after Draghi’s monthly news conference. But Spanish ES:2YR_ESP -16.33% and Italian IT:2YR_ITA -16.96% two-year bonds rallied Friday, pulling yields down sharply. Ten-year yields also fell but lagged behind. Draghi on Thursday said any future ECB bond-buying efforts would focus on the short end of yield curves. Rumors that Spain’s government could signal Friday that it is ready to apply to the euro-zone rescue fund for help in controlling its borrowing costs helped lift the euro and equities, strategists said. “The path of least resistance is for the euro to settle into a range, for high-yielding currencies and equities to rally, as long as the U.S. employment data don’t disappoint,� said Kit Juckes, currency strategist at Société Générale. “Of course, that’s a huge caveat. The fact that the market wants to buy risk will count for nothing if the data are weak.� Economists polled by MarketWatch forecast a net gain of 100,000 jobs in July, enough to absorb the increase in the U.S. labor force, but too slow to lower the country’s high unemployment rate of 8.2%. July nonfarm payrolls preview “Having been disappointed by both the [Federal Open Market Committee] and then ECB this week, the onus seems to lie with a soft [jobs] number today to reassure markets that central banks’ balance sheets will be expanding further in the near term,� said Michael Turner, a fixed income and currency strategist at RBC Capital Markets. Among other major currencies, the British pound GBPUSD +0.2605% traded at $1.5570, up from $1.5515, while the Australian dollar AUDUSD +0.4500% climbed to $1.0516 from $1.0460. Against the Japanese currency, the greenback USDJPY +0.0687% changed hands for ¥78.23, little changed from ¥78.20 in New York Thursday. William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.

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