MW: Dollar eases; market awaits Fed, German ruling
By Myra P. Saefong and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) — The U.S. dollar eased against major global currencies Tuesday, reflecting caution ahead of a decision by Germany’s top court on the euro-zone permanent rescue fund and this week’s Federal Reserve meeting.
The ICE dollar index DXY -0.51% , a gauge of the greenback’s moves against six other major currencies, fell to 79.957, down from 80.408 in North American trade late on Monday.
The Federal Open Market Committee is due to announce its decision Thursday after a two-day meeting.
The Fed certainly has “some data points to consider that indicate the economy continues to weaken,” said David Brown, chief executive officer and founder of equity research firm Sabrient Systems.
“Obviously, it is the Fed’s decision, and they have information that we do not; but the odds seem high that they should and will take action,” he said in an emailed note.
Early Tuesday, the Commerce Department reported that the U.S. trade deficit widened a slight 0.2% in July to $42.0 billion. The July trade deficit was below the consensus forecast of Wall Street economists of a deficit of $43.5 billion for July and below last month’s initial reading for June. Read more on the trade gap.
“July’s trade figures are nowhere near as good as they look at first sight, as they mask a significant deterioration in export growth to the euro-zone,” said Paul Dales, senior U.S. economist at Capital Economics, in a note. “What’s more, the full impact on the U.S. economy from the overseas slowdown has yet to be felt.”
The dollar extended losses Tuesday after Moody’s Investors Service said the U.S. runs the risk of losing its triple-A rating unless Congress takes some constructive action on the federal debt The rating stands at Aaa with an outlook of “negative.” Read more on Moody’s.
Euro strengthens
The euro EURUSD +0.53% climbed to $1.2835 from $1.2764, as focus remained on Wednesday’s ruling by Germany’s constitutional court on the legal challenges to the country’s participation in the European Stability Mechanism.
The court on Tuesday confirmed it would proceed with its ruling the following day, despite a new challenge filed late last week that had led to speculation the decision could be delayed. Read: Germany's top court to decide rescue fund's fate .
“Last week, markets ‘bought the rumor’ about what the [European Central Bank] would do, and then ‘bought the news’ when the rumors were proven correct. Now we are seeing ‘risk’ rally not so much on the hope the Constitutional Court will rule that changes to the ESM are legal, as on the prospect that they will reach a conclusion one way or the other,” said Kit Juckes, head of foreign exchange at Société Générale.
“The only conclusion that makes any sense is that the bears are being squeezed and then bulls are in command. [A break above] $1.2841 is the chart level that could open the way for a spike to $1.30, where we would like to sell the euro,” he said, in a note to clients.
“In the absence of any economic releases in Europe [Tuesday], focus will be on political developments, starting with the German vote on ESM constitutionality,” Crédit Agricole currency strategist Sireen Harajli wrote to clients.
Among other major currency pairs, the British pound GBPUSD +0.35% was fetching $1.6046, reclaiming the $1.60-handle, from $1.5995 in the U.S. on Monday.
Against the Japanese yen, the dollar USDJPY -0.59% was changing hands for ¥77.83, down from ¥78.31.
The Australian dollar AUDUSD +0.90% was trading at $1.0433, up from $1.0336.
Myra Saefong is a MarketWatch reporter based in San Francisco. Phani Kumar in Hong Kong contributed to this report.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
