MW: Dollar gains as political turmoil hits euro zone
Japanese yen gains ahead of Bank of Japan meeting
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar gained against the euro and most other major currencies on Monday as nervousness over France’s presidential election and political turmoil in the Netherlands undermined faith that the euro-zone’s political leaders will be able to keep the region’s sovereign debt crisis under control.
A weak round of Chinese and European economic data also sent towards assets considered safe havens.
The euro EURUSD -0.5783% fell to $1.3132, down from $1.3219 in late trading North American trading Friday.
The ICE dollar index DXY +0.61% , which measures the greenback against a basket of six currencies, rose to 79.509, from 79.140 Friday.
European equities fell sharply and U.S. stock index futures pointed to a lower open after Markit purchasing-managers’ indexes for the euro zone pointed to an accelerating contraction in business activity this month. See more on euro-zone PMI data.
U.S. stocks opened lower, also increasing the appeal of safer havens, including Treasury bonds and the greenback. The S&P 500 Index SPX -1.34% declined about 1% in early trading. Read more on bonds.
Political turmoil was in the spotlight as Dutch Prime Minister Mark Rutte prepared to tender his government’s resignation following the collapse of budget talks over the weekend. Yields on Dutch government bonds jumped amid growing worries that the country’s AAA credit rating could be lost. The potential for a new government also raised fears that Germany could soon be deprived of a key partner in its push to overhaul the euro-zone budget process, analysts said. Read about euro-zone politics, PMI.
In the Netherlands, “polls over the weekend suggest new elections would not produce a feasible working coalition, pointing to further deadlock ahead,” said Marc Chandler, global head of currency strategist at Brown Brothers Harriman.
New elections may not be held until September, and opposition to further austerity measures raises question about whether the country will vote in favor of a tighter fiscal union for the euro zone “despite being part of the core and a leading proponent of fiscal responsibility,” Chanlder added.
At the same time, French President Nicolas Sarkozy -- a key architect alongside German Chancellor Angela Merkel in crafting the euro-zone response to the region’s debt crisis -- faces an uphill battle to remain in office after placing second to Socialist challenger François Hollande in Sunday’s first-round presidential vote. The contest also saw a surprising third-place finish by anti-immigrant, anti-euro National Front leader Marine Le Pen.
IMF, China, Japan
Weekend news that the International Monetary Fund secured an additional $430 billion in pledges to help fight crises had little impact, strategists said, coming in near levels touted by IMF chief Christine Lagarde last week.
“Investor attention is currently more focused on whether additional euro-zone countries will need external financing and whether the euro zone’s own rescue facilities have the means to offer it,” said Chris Walker, strategist at UBS, in a note to clients.
HSBC’s preliminary “flash” purchasing managers’ index for China rose to a two-month high of 49.1, but remained below the 50 level, signaling activity continued to contract. Read about China PMI data.
The British pound GBPUSD -0.2574% pared losses to $1.6111, compared with $1.6123 on Friday.
Against the Japanese yen, the dollar USDJPY -0.4661% bought ÂĄ81.13, down from ÂĄ81.53 yen in late trading Friday. The yen also tends to benefit when traders seek safe havens. Lower U.S. Treasury yields also reduce the appeal of swapping yen for dollars, outweighing expectations of what Japanese central bankers will do when they meet Friday. Read about falling U.S. Treasury yields.
The Bank of Japan “is largely expected to take additional steps to ease further at its meeting on Friday and the extent of easing will likely dictate movement in the yen,” said Eric Viloria, senior currency strategist at Forex.com.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Sarah Turner in Sydney contributed to this report.
