Dollar reverses all losses since last Fed meeting
By Deborah Levine and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) — The dollar index pushed above the 80 mark for the first time in a month on Wednesday, defying expectations that the U.S. Federal Reserve’s latest round of quantitative easing would drive the currency lower.
The ICE dollar index DXY -0.03% , which measures the greenback against a basket of six major currencies, climbed as high as 80.186.
It lately traded at 79.942, compared with 79.973 in late North American trade Tuesday.
The dollar index last stood higher than the 80 mark exactly one month ago — just before the Fed launched its open-ended bond-purchase program.
“Defiantly ignoring the negative prognostications of the vast majority of currency strategists and commentators, the dollar has recorded a modest appreciation of 1.5% since the Fed announced unbounded QE four weeks ago,” said Michael Derks, chief strategist at FxPro in London.
Quantitative easing is an almost-pejorative term to central bankers, and is used when policy makers take steps that are seen as akin to printing money, such as buying up assets to push more cash into the financial system. Having more of any currency floating around would, in theory, make its value decline.
Wednesday’s advance built on gains scored Tuesday, when the dollar saw some buying as investors fretted about the world’s economic prospects after the International Monetary Fund downgraded its global growth estimates for 2012 and 2013. Read: Dollar rises as IMF sounds warning.
Traders said the euro’s slight gains against the dollar Wednesday amounted to consolidation of positions while waiting to see whether Spain asks for a bailout and triggers buying of its debt by the European Central Bank. Spanish officials continue to say they don’t need the financial aid, and yields have been cooperative, but only because of anticipated ECB buying.
The main problem for Europe comes down to a lack of economic growth, which is the best way for a country to be able to support its debt load. Countries that share the euro don’t even have the option of devaluing their currency — a popular option in history — because that’s controlled by the ECB. And the austerity measures being demanded by nations giving the bailouts, while entirely reasonable in many ways, are further choking off growth in indebted countries.
In contrast to that — and lending support to the dollar — is evidence the U.S. economy has been stronger than expected, while the jobs outlook looks more upbeat, FxPro’s Derks wrote in a note to clients.
Also keeping the dollar up in the face of the Fed’s stimulus measures, several major U.S. firms have been repatriating funds ahead of their fiscal year-end, according to Derks.
One more plus: traders had loaded up on short dollar positions on expectations that the currency will struggle as the so-called fiscal cliff approaches.
Derks expects the dollar index to test technical resistance at the 80.80 level in the short term. “Right now, it probably pays not to underestimate the buck,” he said.
The WSJ Dollar Index XX:BUXX -0.05% , which measures the U.S. unit against a wider basket, was little changed at 69.91.
The euro EURUSD +0.0435% recouped some of the prior two-day loss of 1%, changing hands at $1.2895 from $1.2879 Tuesday
Greece’s main public- and private-sector unions on Wednesday called for a nationwide, 24-hour general strike to take place on Oct. 18 in protest of additional austerity measures. The strike coincides with the first day of a two-day summit meeting of European Union leaders. See: Greek general strike called for Oct. 18.
The British pound GBPUSD +0.0418% traded at $1.6021, up slightly from $1.6001, while the Australian dollar AUDUSD +0.3860% reached $1.0249, up from $1.0207.
The dollar also was little changed against the Japanese yen USDJPY +0.0156% , buying ÂĄ78.31, versus ÂĄ78.29 late Tuesday.
Deborah Levine is a MarketWatch reporter, based in San Francisco.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Sarah Turner in Sydney contributed to this report.
