MW: Dollar trades up as euro bulls take a breather
Potential for more upside seen this week for the shared currency
By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The dollar rebounded somewhat Monday, with the euro giving back some ground after pressing to nearly a three-month high against the U.S. unit last week as the European Central Bank detailed its latest bond-buying plan.
The ICE dollar index DXY +0.19% reached 80.314, up from 80.182 in late North American trading on Friday.
Last Thursday, European Central Bank chief Mario Draghi laid out details of a plan for so-called Outright Monetary Transactions that would see the central bank make potentially unlimited purchases of government bonds from distressed countries in concert with the euro zone’s rescue fund. Read related story.
Attention in Europe is largely focused on a decision to be rendered Wednesday by Germany’s Constitutional Court regarding challenges to the country’s participation in the European Stability Mechanism, or the ESM.
The court is widely expected to approve the ESM, but with conditions added that would call for tough parliamentary oversight. Also Wednesday, Dutch voters go to the polls.
The euro EURUSD -0.2498% fell to $1.2780, down from $1.2810 at the end of last week.
“We are seeing a very normal pullback after the sharp move higher that we saw on Thursday and Friday of last week. EURUSD has jumped by 300 pips, so a breather at $1.28 is perfectly normal and does not suggest that the euro-risk rally has run out of steam yet,” said Kathleen Brooks, research director at Forex.com.
“If the Constitutional Court votes that the ESM is legal as we expect and if the Liberals win in the Netherlands then we could see EURUSD get over the $1.2885 mark,” which is the 200-day smooth moving average, she said.
The euro extended a gain dollar at the end of last week after a poor report on U.S. jobs triggered more speculation that the Federal Reserve would undertake further bond purchases to boost the largest global economy.
“It will be important to watch for real money and central-bank diversification away from the U.S. dollar for clues as to the degree of confidence in what the Fed is likely to do,” the strategists said.
“Until this week’s FOMC rate decision is out of the way, what happens in Europe will be of secondary importance,” they said.
The British pound GBPUSD -0.2893% traded at $1.5976, down from $1.6005 in late trading Friday.
Against the Japanese yen USDJPY -0.0128% , the dollar bought ÂĄ78.22, little changed from ÂĄ78.25 Friday.
Japanese economic data out Monday included a downward revision to gross domestic product for the April-June quarter, while separate data showed the nation’s current-account surplus widening despite a trade deficit. Read more on Japan data.
Also Monday, the Australian dollar AUDUSD -0.2379% fell to $1.0346, off from $1.0397.
The Australian currency got a boost last week from signs that China was stepping up infrastructure spending.
However, weak Chinese data out over the weekend sharpened concerns about the health of the No. 2 global economy. Read more on Chinese economic data.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Sarah Turner is MarketWatch's bureau chief in Sydney.
