MW:Dollar up, euro steadies on China reserves move
Euro-zone finance ministers seek IMF role in addressing crisis
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar gained ground versus most major rivals Wednesday, while the euro trimmed losses after China cut reserve ratio requirements for banks.
The euro EURUSD +0.00% traded at $1.3328, little changed from $1.3329 in North American trade late Tuesday.
The euro lost ground in earlier activity, with a sharp drop in Chinese equities serving to undercut overall risk appetite, said Adam Cole, global head of foreign exchange at RBC Capital Markets. China’s Shanghai Composite Index CN:000001 -3.27% fell 3.3%. Read Asia Markets.
The euro regained its footing in subsequent action as news reports said China’s central bank cut the reserve requirement ratio for its banks by 50 basis points, the first reduction in nearly three years. The cut marks a swing to easier monetary policy amid rising global market turmoil.
But strategists said homegrown problems will continue to be the key driver of action for the euro.
As expected, the finance ministers from the 17 euro-member countries approved the release of Europe’s portion of Greece’s 8 billion euro ($10.7 billion) aid tranche. They also agreed on a plan to leverage the funds of the €440 billion European Financial Stability Facility, or EFSF, to give the bailout fund more firepower and said it would be operational by mid-January. As planned, the fund would offer guarantees on 20% to 30% of first losses on designated sovereign bond sales.
“The problem ... is that the market sees [the enhanced EFSF] as DOA [dead on arrival],” said Steven Barrow, currency strategist at Standard Bank. “Foreign sovereign wealth funds have not shown much interest in contributing to the fund and bond-market weakness has meant that insurance guarantees have had to be increased, with the result that the leverage involved does not seem likely to take the fund above €1 trillion.”
Meanwhile, data showed Germany’s seasonally-adjusted unemployment rate fell back to a 20-year low of 6.9% in November from 7% in October. Euro-zone figures, meanwhile, showed that the region’s unemployment rate ticked up to a 13-year high of 10.3% from 10.2%. Read Market Pulse about euro-zone inflation and unemployment data.
The dollar index DXY -0.08% , which measures the U.S. unit against a basket of six major rivals , traded at 79.011, up slightly from 78.990 late Tuesday.
The British pound GBPUSD +0.03% traded at $1.5633, up from $1.5610, a day after Chancellor of the Exchequer George Osborne’s autumn budget statement. Osborne said Britain’s economy wouldn’t fall into another recession despite downgraded growth projections and higher forecasts for public borrowing. Read about Osborne's autumn statement.
“Sterling was quite resilient to a fairly depressing autumn statement, mainly because there wasn’t much in the statement that could be considered new,” wrote strategists at Lloyds Bank. “However sterling, like the euro, looks likely to continue to struggle against any currencies where there are decent growth prospects if there is any moderation in market concern about the euro-area debt crisis.”
The dollar USDJPY +0.09% traded at 77.99 Japanese yen, up from ÂĄ77.85 in North American trade late Tuesday.
William L. Watts is a reporter for MarketWatch in Frankfurt.
