Sterling slumps to 6-month low on dovish BOE comments
By William L. Watts and V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar on Wednesday lost ground against most major rivals, but trimmed a loss versus the yen a day after a joint statement from the Group of Seven left traders unclear over international policy makers’ stance on the yen’s sharp fall.
The ICE dollar index DXY -0.07% , a gauge of the greenback’s moves against a basket of six major global units, slipped to 80.022 in recent action, down from 80.083 in North America late on Tuesday.
The WSJ dollar index XX:BUXX +0.03% , a benchmark for the greenback’s moves against a slightly wider basket of currencies, dropped to 71.49 from 71.53.
The dollar posted little reaction to data that showed U.S. retail sales rose by 0.1% in January. See: U.S. retail sales inch up 0.1% in January .
After straddling the 93-yen level during Asian trading hours, the yen USDJPY +0.14% fetched ÂĄ93.41 Wednesday, down slightly from ÂĄ93.56 in New York late Tuesday.
The yen rebounded sharply Tuesday after an unidentified G-7 official was quoted in a news report as saying markets had misinterpreted a joint statement issued by G-7 finance ministers and central bankers. The official said the G-7 was concerned about excessive volatility by the yen and that Japan would be a major focus at a meeting of Group of 20 finance ministers and central bankers in Moscow Friday and Saturday. See: Confusion reigns over G-7 position on yen .
“The subtext for the rather non-eventful G-7 statement is that the consequences of domestic policies for the rest of the world are of limited importance. It justifies the stance taken by the U.S., U.K., Japan or Switzerland, with the last odd man out the euro zone,” Galy said.
The euro EURUSD +0.14% traded at $1.3481, compared with $1.3449 late Tuesday.
The British pound GBPUSD -0.59% slumped to its lowest level versus the dollar since August. Sterling traded at $1.5562 versus $1.5654, extending a loss after Bank of England Gov. Mervyn King said the central bank’s Monetary Policy Committee remained content to look through a period of above-target inflation out of concern that tightening monetary policy in the near term could derail a fragile economic recovery. See: BOE’s King: Tighter policy could derail U.K. recovery .
The Swedish krona, meanwhile, jumped versus the dollar USDSEK -1.18% and the euro EURSEK -1.04% after Sweden’s central bank left its repo rate unchanged at 1%.
The euro slumped 1% to fetch 8.4665 kronor, while the U.S. currency dropped 1.1% to fetch 6.2870 kronor per dollar.
The rate decision had split economic forecasters, with some believing the krone’s strength would convince policy makers to deliver a further quarter-point rate cut, said Rob Carnell, an economist at ING Bank.
“With much of the world seemingly engaged in a covert operation to devalue their own currencies, [krona] strength means that future rate cuts still cannot be ruled out,” Carnell said.
Meanwhile, strategists said there remains a possibility G-20 officials will voice their opposition to the yen’s recent depreciation — a factor that aids Japan’s exporters but could hurt competitors from other nations. Read blog: Yen’s boon to Japan needn’t be S. Korea’s bane .
However, some analysts said that unless the G-20 pressured Tokyo over the weak yen, the Japanese currency might see further declines.
“It seems logical that Japan will be questioned in the upcoming G-20 meeting this weekend on its moves to weaken the [yen],” said Stan Shamu, a strategist at IG Markets in Melbourne.
“However…it’s all been words and rhetoric” so far, he said. So “we feel [dollar-yen] still has upside, and buying dips on any disappointment from the G-20 could potentially be a good way to go,” said Shamu.
The dollar has jumped nearly 17% and the euro has soared more than 23% against the yen over the past three months, amid a combination of monetary and fiscal policies by Tokyo to pull the country from an era of falling prices and economic stagnation.
The Australian dollar AUDUSD +0.27% traded at $1.0338 versus $1.0303.
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.
