Dollar buoyed ahead of President Obama’s deficit-reduction plan
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar rose versus most major rivals Monday, with the euro under renewed pressure as fears of a Greek debt default mounted.
The euro EURUSD -0.23% changed hands at $1.3666 versus the dollar, down from $1.3798 in North American trade late Friday.
“After rebounding to $1.3700 at the start of European trade, [the euro] lost momentum and hit fresh session lows at $1.3630 as traders fear that Greece is running out of time,” said Boris Schlossberg, director of currency research at GFT.
Greek officials are set to hold a conference call with officials from the “troika” of creditors — the European Union, International Monetary Fund and European Central Bank — on Monday. Euro-zone finance ministers on Friday said a decision on the release of an 8 billion euro ($11 billion) round of aid under last year’s bailout plan will be made in early October.
Greek Finance Minister Evangelos Venizelos on Sunday said it was crucial that Greece take steps needed to meet its 2011 and 2012 fiscal targets in order to avoid being made a scapegoat for the euro-zone crisis. Read the latest on Greece.
Meanwhile, there has been market speculation Greece could default as early as Sept. 20 when coupon payments are due on two bonds, Schlossberg noted.
“We doubt that authorities would risk such a disorderly outcome and will most likely continue negotiations throughout the week,” Schlossberg said.
Data released Friday by the U.S. Commodity Futures Trading Commission showed speculative short positions against the euro were at their highest since late June 2010, when the market began to recover from the first stage of the Greek debt crisis, noted analysts at Rabobank.
At the same time, speculators took up increased long positions on the dollar, which are just below their highest levels of the year.
The dollar index DXY +0.71% , which measures the U.S. unit against a basket of six major rivals, rose to 77.159, up from 76.614 on Friday.
U.S. President Barack Obama is scheduled later Monday to lay out a new fiscal package that aims to cut the federal deficit by around $3.6 trillion over a decade, with half coming from tax increases, The Wall Street Journal reported. Read about Obama's deficit plan.
While recent gains by the dollar have stemmed in part from the inability of European officials to tackle the region’s debt crisis, the dollar has also benefited from anticipation of the deficit-reduction plan, said Michael Derks, chief strategist at FxPro in London.
The British pound GBPUSD -0.10% traded at $1.5736, down from $1.5790 on Friday.
The Financial Times reported that the U.K. government could face a 12 billion pound ($18.9 billion) shortfall in its public finances, which could derail the coalition government’s deficit-cutting strategy and force the extension of austerity measures. The calculation was based on the newspaper’s replication of the model of government borrowing used by the independent Office for Budget Responsibility.
The dollar slipped to ¥76.73 versus the Japanese yen, down slightly from ¥76.88.
“Despite the U.S. dollar continuing to remain soggy at higher levels, the fact that it continues to remain above the key ¥76.20/30 support area, keeps the prospects of further gains intact,” said Michael Hewson, strategist at CMC Markets.
As long as dollar/yen holds above that level, a bounce “remains the preferred option” on a breakthrough of the 55-day moving average just above the ¥77.90 level, he said, while a move through support at the ¥76.20 to ¥76.30 area could open the way to further dollar losses toward ¥74.50.
William L. Watts is a reporter for MarketWatch in Frankfurt.
