By Deborah Levine and Sarah Turner, MarketWatch
NEW YORK (MarketWatch) — The dollar turned up slightly against the euro on Thursday after the International Swaps and Derivatives Association ruled that no “credit event” has yet occurred amid Greece’s efforts to restructure its debt holdings.
The dollar index DXY +0.04% , which measures the greenback against a basket of six currencies, turned up to 78.818, from 78.799 in late North American trading Wednesday.
The euro EURUSD -0.22% slipped to $1.3308 from $1.3334 late Wednesday.
The ISDA panel said the restructuring of Greek government bonds won’t trigger payouts on derivative instruments known as credit default swaps.
Even if Greece’s debt swap and deal to exclude central banks from taking losses had been ruled a credit event, analysts said it was expected to be manageable. That’s because investors hold net exposure of around just $3.2 billion on CDS covering more than $200 billion of outstanding Greek debt.
However, the question now is how traders think the decision will affect CDS on other countries that have needed bailouts.
Strategists at Lloyds TSB in London said a CDS trigger could still “bring contagion fears back to the fore.”
The market’s reaction may just be a knee-jerk response, said Adam Col, global head of FX strategy at RBC Capital Markets.
“There should be little lasting impact as the cash flow this would drive is small,” Cole said.
Before the ISDA decision, which wasn’t a surprise to markets, the main driver of trading was the prior day’s Congressional testimony from Federal Reserve Chairman Ben Bernanke.
On Wednesday, the greenback rose after Bernanke refrained from signaling that the Fed believed economic conditions were right for another round of quantitative easing. Read about dollar, Bernanke.
Bernanke said that the U.S. economy was presenting the Fed with “somewhat different signals.”
“Our economists did not read anything of great significance into what the Fed chairman said,” currency strategists at BNP Paribas said,
However, they also said that “the mere acknowledgment that the labor market has been performing better than the Fed had expected, given their read on domestic-demand indicators, alongside the failure to offer any additional encouragement to hopes of more policy easing, was enough to provoke a strong reaction.”
The British pound EURUSD -0.22% traded at $1.5944, up from $1.5925.
The dollar USDJPY +0.06% bought 81.14 Japanese yen, paring losses from ÂĄ81.21 Wednesday.
The euro EURJPY -0.19% bought ÂĄ107.98, down from ÂĄ108.30.
