MW: Dollar regains ground lost in wake of Fed move
By William L. Watts and V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar inched higher against the yen and some other currencies Thursday, but it slipped versus the euro after regional leaders moved closer to a banking union.
The ICE dollar index DXY -0.02% , which measures the greenback’s performance against a basket of six other major currencies, rose to 79.937, up from 79.858 in North America late Wednesday.
The dollar had slipped Wednesday after the Federal Reserve said it would buy $45 billion worth of additional long-maturity securities. It also said it would maintain its ultra-low interest rates until the unemployment rate drops below 6.5%, unless inflation accelerates. Read MarketWatch First Take on the Fed’s decision.
Strategists said worries about the so-called fiscal cliff were underpinning the dollar, which tends to gain ground as risk appetite declines. U.S. stock futures pointed to a flat start, while European equities lost ground.
Bernanke warned that the Fed won’t be able to shield the U.S. economy from the impact of heavy spending cuts and tax hikes that will begin to take effect on Jan. 1. unless the White House and congressional Republicans reach a budget deal.
“While help for risk assets from the Fed might grab some attention, now it’s likely that avoidance of the fiscal cliff will prove more important,” said Steven Barrow, currency and fixed-income strategist at Standard Bank in London.
“Of course, the big question here is whether a deal can be struck in time or whether the U.S. will topple over the cliff, at least temporarily, because a complete deal cannot be brokered and voted before the end of the year. We still see risks of a topple but if there is any selloff in risk assets as a result, it looks as if willing buyers will step in, even if it is a quiet time of year,” he said.
Against the Japanese yen, the dollar USDJPY +0.2320% traded at ÂĄ83.45, rising further from the ÂĄ83.26-level it hit overnight.
“Many Japanese exporters put currency hedges in place around ¥83 to protect against adverse Japanese yen strength; if these firms believe the pair will have a sustained move above ¥83, then you may see a number of them unwind [them], pushing U.S. dollar/yen even higher,” said Stan Shamu, a strategist at IG Markets.
The euro EURUSD -0.0559% edged slightly up to $1.3081 from $1.3070 late Wednesday. The gains came following news that European Union finance ministers reached an agreement to move the bloc closer to a banking union by bringing the region’s largest lenders under a single supervisory authority. Read more on the European agreement.
The Swiss franc strengthened despite the Swiss National Bank’s reiteration of its determination to keep the currency from gaining versus the euro. The dollar USDCHF -0.1185% changed hands at 0.9243 francs, down from 0.9264 francs earlier, while the euro EURCHF -0.1698% traded at 1.2089 francs, down from 1.2110 francs.
The SNB said it remained prepared to buy foreign currencies in unlimited quantities to ensure the euro doesn’t trade below 1.20 Swiss francs. See: Swiss central bank maintains cap on franc .
Among other major currency pairs, the British pound GBPUSD -0.0361% was at $1.6141, down slightly from $1.6146, while the Australian dollar AUDUSD +0.0214% climbed to $1.0556 from $1.0544.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau. Follow him on Twitter @MktwKumar.
