Talk of new Swiss franc peg weighs on the euro versus the dollar
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar turned back down against the euro Tuesday as investors appeared more willing to shift into riskier assets like stocks and the euro after Greece made a debt payment, even after Italy’s credit rating was downgraded a notch by Standard & Poor’s.
The shared currency briefly dropped into negative territory, which analysts attributed to speculation that the Swiss National Bank might change its peg for the Swiss franc against the euro.
The euro EURUSD -0.06% turned back up to $1.3708, from $1.3685 late-afternoon North American trading on Monday and after temporarily dipping under $1.36.
The dollar index DXY -0.27% , which tracks the U.S. unit against a basket of six currencies, turned down to 76.987, versus 77.089 Monday.
Also Tuesday, Greek Finance Minister Evangelos Venizelos is scheduled to continue a conference call with inspectors from the so-called troika — the European Union, the International Monetary Fund and the European Central Bank — over its next tranche of aid. The finance ministry said talks Monday night were “productive.”
“The euro-dollar is marginally firmer amid the hopes that today’s phone call between Greece and the Troika will result in Greece getting its next 8-billion euro aid tranche, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
Michael Turner, fixed-income and currency strategist at RBC Capital, said the euro’s rebound followed talk of Italian-bond buying by the European Central Bank and reports that the Greek government fully paid 769 million euros in coupon payments that were due Tuesday. Read about Greek coupon payment, T-bill sale.
The euro had tumbled during Asian trading after S&P late Monday cut long-term sovereign ratings on Italy by one notch, to A from A-plus, and left the ratings on negative outlook. Read more about the Italian sovereign credit downgrade.
Still, there remain bigger issues that have pushed the euro down 1.7% this month already, Chandler said.
“While the results of this phone call also likely to be the key event of the day, we continue to suspect that the rapid deterioration in euro-zone economic data and the potential for higher borrowing costs due in part to rating downgrades as likely to be major headwinds for the euro,” he wrote in a note.
“After all, the key ingredient that appears to be absent from many of the talks and solutions about how to mitigate the euro zone sovereign debt is economic growth, which is unlikely given tough packages implemented by many of the periphery countries,” he said.
Swiss franc talk
The euro declined in morning trading following talk that the Swiss National Bank would change its near-peg for the Swiss franc. The central bank declined to comment, according to Dow Jones Newswires.
The euro EURCHF +0.67% rose from right around the 1.20 franc peg to as high as 1.2213 francs, before settling back to 1.2151 francs, up about 0.7% on the day.
“Talk of the Swiss National Bank re-pegging euro-franc to 1.25 from 1.20 has sent the currency pair up 80 pips in a heartbeat,” said Kathy Lien, director of currency research for GFT.
