MW: Dollar up; debt worries keep euro under pressure
LONDON (MarketWatch) — The U.S. dollar gained ground on most currencies Wednesday, with the euro again plumbing two-month lows as euro-zone worries over sovereign debt deepened.
The dollar index (DXY 79.58, -0.10, -0.13%) , which tracks the performance of the greenback against a basket of other major rivals, stood at 79.722, up slightly from 79.716 late Tuesday.
Helping cushion the euro’s pullback was an unexpected jump in a closely watched gauge of German business sentiment, which the Ifo Institute reported rose in November to its highest level since reunification with the former East Germany. Read about the Ifo data.
The euro slipped below the $1.33 level for the first time since late September before trimming losses to change hands at $1.3349, down from $1.3364 in North American trading late Tuesday.
Peripheral euro-zone bonds continued to feel selling pressure Wednesday, with the premium demanded by investors to hold Spanish and Portuguese bonds over their German counterparts widening for a second day to levels unseen since the launch of the euro. See more about deterioration in yields and spreads on peripheral European bonds.
The bond pressure signals fears that debt problems won’t be contained to Ireland, which has requested a European Union-International Monetary Fund bailout.
While a debt crisis for Portugal is viewed as manageable under the EU-IMF bailout facility put in place after Greece was forced to seek a rescue earlier this year, a bailout of Spain would put severe strains on the euro zone.
Economists note that Spain, however, appears more insulated from a potential debt crisis than smaller neighbor Portugal.
“Nevertheless, the euro continues to see speculative assaults on the credits of the periphery economies and until the price action in the bond markets stabilizes the [euro/U.S. dollar] pair remains under heavy downward pressure,” said Boris Schlossberg, director of currency research at GFT.
Meanwhile, the Irish government will reportedly take a majority stake in lender Bank of Ireland, as it struggles to try to restore credibility to the country’s battered banking sector and economy. Read latest on Ireland
Also Wednesday, the dollar rose against the Japanese yen (USDYEN 83.4000, +0.2500, +0.3006%) , reaching ¥83.36 from ¥83.13 late Tuesday.
On Tuesday, the yen initially sold off against the U.S. unit, after North and South Korea exchanged artillery fire at a South Korean island near their western border. But with no new hostilities reported Wednesday, the Japanese unit stabilized.
The British pound (GBPUSD 1.5810, +0.0036, +0.2282%) bought $1.5822, up from $1.5777 late Tuesday.
