MW: Euro rallies as Italy votes; downgrade sinks pound
By William L. Watts and V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The euro rallied Monday as traders awaited the conclusion of Italy’s bitterly contested general election, while the British pound foundered after ratings firm Moody’s Investors Service late last week stripped the U.K. of its AAA credit rating.
Meanwhile, the Japanese yen bounced back from an earlier loss that followed news reports that a longtime Bank of Japan critic and pro-stimulus advocate is in line to head the central bank.
Overall, hopes for a market-friendly outcome in Italy and more stimulus in Japan helped fuel a global rally in stocks, leaving investors to shun the safe-haven dollar. See: Japan, Italy hopes drive gains for stock futures.
The gyrations left the ICE dollar index DXY -0.35% — a measure of the greenback against six other major currencies — at 81.154, down from 81.454 in North America on Friday.
The WSJ dollar index XX:BUXX -0.14% , which captures the currency’s moves versus a slightly wider basket of rival units, slipped to 72.40 from Friday’s close of 72.55.
The euro EURUSD +0.61% extended gains Monday as voting in Italy’s general election winds down. Polls close at 9 a.m. Eastern, with initial exit polls expected shortly after.
The euro traded as high as $1.3304 and changed hands at $1.3299 in recent action, up from $1.3182 in North American trade late Friday.
A best-case scenario for the market would see a center-left coalition that includes technocratic Prime Minister Mario Monti, analysts said, while an inconclusive result or a strong showing by former premier Silvio Berlusconi could unsettle markets. See: Could Berlusconi dent the global stock rally?
The British pound GBPUSD +0.17% , which had tumbled late Friday after Moody’s Investors Service cut the U.K.’s sovereign ratings to Aa1 from Aaa, extended its slide on Monday. The pound fetched $1.5139, down from $1.5245 Friday before Moody’s ratings action. Read full story on the impact on the pound from the ratings downgrade.
BK Asset Management managing director Kathy Lien said Moody’s ratings downgrade of the U.K. adds to the growing number of reasons for the sterling to stay under pressure. She said the psychologically significant level of $1.50 could serve as near-term support, while the March 2010 and May 2009 lows around $1.4755 appear to be a “more important level.”
“However, traders should also be mindful of the fact that the [British pound] is a very volatile currency pair that can experience large intraday swings,” Lien said.
The dollar USDJPY -0.58% , which rose as high as ÂĄ94.76 earlier in the day, changed hands at ÂĄ93.95 in recent action versus ÂĄ93.43 late Friday afternoon in New York.
The euro EURJPY +0.05% was at ¥125.03, pulling back after briefly rising as high as ¥125.34, but still almost two full yen above Friday’s level of ¥123.12.
The yen had fallen sharply following weekend reports in Japanese media that Haruhiko Kuroda would win Tokyo’s backing to be the next governor of the Bank of Japan, when incumbent Masaaki Shirakawa steps down on March 19.
Kuroda, currently president of the Asian Development Bank, has previously been quoted as saying that the Japanese central bank’s monetary easing has been too timid in the face of deflationary pressures.
Reports of his nomination came against the backdrop of Japanese Prime Minister Shinzo Abe’s efforts to push the central bank to help boost growth, and to adopt more aggressive policies to pull the country from an era of falling prices.
“All told, the Kuroda nomination will be a slight positive for [the dollar against the yen], in our view, perhaps worth a move of around 1% from Friday’s close,” the Nomura analysts said.
They added, however, that the situation could change, as there was still no official announcement from the government.
Among other major currency pairs, the Australian dollar AUDUSD +0.05% was at $1.0278, down from $1.0327 late Friday.
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.
