MW: Dollar pares gains as stress-test reports come in
Canadian dollar turns down after Bank of Canada raises rates
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar pared gains Tuesday against the euro as more reports about European banks' stress-test results came out ahead of the official publication at the end of the week.
The dollar index (DXY 82.67, +0.16, +0.20%) , which tracks the greenback against a basket of six major currencies, rose to 82.660 from 82.529 in North American trading late Monday.
The euro (CUR_EURUSD 1.2913, -0.0033, -0.2549%) bought $1.2919, down from $1.2959 Monday. It fell as low as 41.2839 earlier.
Other leaks indicated Spanish and even Greek banks are expected to pass the tests, giving some support to the euro but calling into question how rigorous the tests are.
"This must be the easiest test in the world to pass," said Andrew Brenner, head of emerging markets at Guggenheim Securities.
News reports that a stress test conducted on nationalized German lender Hypo Real Estate revealed a possible capital shortfall appeared to stand in the way of the euro's ability to extend a push above $1.30 level, strategists said.
"Even though it was reportedly only one German bank, the news was negative," said Brian Kim, currency strategist at UBS. The size of the prospective shortfall was reportedly pegged at 2 billion euros ($2.59 billion).
It "raised questions on the depth of the stress tests and the fact that the bank in question has government support, which means that investors are uncertain how banks will obtain more capital if needed," Kim added.
The euro was buoyed earlier, however, as debt issued by Ireland, Spain and Greece on Tuesday met with solid demand, said strategists at Brown Brothers Harriman. Read about European debt auctions.
Still, they warned that while the dollar is likely to remain under pressure as a result of recent technical damage and growing evidence of a weaker U.S. economic outlook, "the euro is feeling a little heavy right now."
Indeed, a government report Tuesday said U.S. housing starts fell 5% in June to a 549,000 pace, the weakest in eight months. See more on housing starts.
Canada rates up, dollar down
The Canadian dollar, a component of the dollar index, turned lower after the Bank of Canada raised its key interest rate to 0.75%, while noting a more gradual economic recovery in the country and slightly weaker growth prospects for the global economy.
The Canadian dollar (CUR_USDCAD 1.0515, -0.0031, -0.2939%) turned back up against its U.S. counterpart after being lower just after the decision. One greenback bought C$1.0515, compared with C$1.0545 late Monday.
"Policy makers went out of their way to send a strong message to the market that further rate hikes are not a given," said Kathy Lien, director of currency research at Global Forex Trading.
Some short-term markets had been pricing in more than a percentage point of rate increases over the next year, according to Brown Brothers.
Meanwhile, the British pound (CUR_GBPUSD 1.5275, +0.0050, +0.3284%) turned up to $1.5278, from $1.5235 late Monday, after data showed June public-sector borrowing exceeded expectations. Read about British borrowing.
The dollar traded in a range against Japan's yen (CUR_USDYEN 87.1400, +0.3900, +0.4496%) , changing hands at ¥86.30 compared with ¥86.85 late Monday. It rose as high as ¥87.18 earlier in the Asian session, but it also dipped to ¥86.72.
