Trader positioning flat; analysts mull Japanese remarks
By Deborah Levine and V. Phani Kumar, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar pared a decline on Tuesday, while the euro recovered from its lows after a round of stronger-than-expected data from Britain provided a modest lift to risk appetite and Spanish government bond yields retreated.
The dollar index DXY +0.03% , which measures the greenback against a basket of six major currencies, pared a decline to 83.152 from 83.165 in North American trade late Monday.
Slight losses against the British pound and Japanese yen weighed on the index.
The euro EURUSD -0.2468% still slipped to $1.2292, compared with $1.2312 Monday.
Analysts are also awaiting a decision from Germany’s Federal Constitutional Court, which heard arguments regarding a challenge of the country’s participation in funding the permanent European Stability Mechanism. A decision wasn’t expected on Tuesday, news reports said.
Earlier, the Eurogroup of euro-zone finance ministers, which met until the early hours of Tuesday morning, announced an extension of Spain’s deadline for containing its fiscal deficit, with €30 billion made available to assist Spanish banks by the end of this month. Read story on Spain.
Spanish government bond yields retreated after the 10-year poked back above the 7% level on Monday. The 10-year yield ES:10YR_ESP -3.07% declined 0.23 percentage point to 6.78%, according to electronic trading platform Tradeweb.
Also, an unexpected improvement in U.K. manufacturing data boosted investors willingness to shift into riskier assets. Read about U.K. data.
“Sentiment improved markedly at the start of European dealing as [a] drop in bond yields and surprisingly robust economic data out of the U.K. helped spark a short covering rally,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management.
The British pound GBPUSD +0.0334% reversed an earlier loss to change hands at $1.5534, up from $1.5518 late on Monday.
Analysts at Citi noted that trader seem to be limiting exposure to overly short or long positions, keeping currency pairs in tight ranges.
“The overall picture is one of light conviction,” said Todd Elmer, a currency strategist at Citi. “This should hardly be surprising as questions on Europe continue to mount and there is increased uncertainty as to the timing and magnitude of the U.S. policy response to ongoing slowing. Since clarity on these issues is unlikely to be forthcoming, we continue to see little incentive for investors to build larger positions.
“This lack of ammunition likely goes some ways to explaining why recent ranges have been so difficult to break and we are not convinced a shift in this pattern will materialize in the short term,” he said.
Japan’s ‘strong steps’
Against the yen, the dollar USDJPY -0.2128% declined to ¥79.42, compared with ¥79.59 Monday. The dollar traded as low as ¥79.18, according to FactSet.
The head of the Bank of Japan was quoted as vowing to continue “strong” steps aimed at shaking the nation out of its deflationary state.
“We have accumulated up to ¥54 trillion ($681 billion) of asset purchases so far, but we are aiming for ¥70 trillion and through the accumulation of another ¥16 trillion in assets we believe the impact of monetary easing will be further enhanced,” Bank of Japan Gov. Masaaki Shirakawa said Tuesday, according to a government official. Read about the BOJ chief’s comments.
The remarks were made in a government meeting and come ahead of a two-day BOJ policy meeting that begins Wednesday.
Data released earlier Tuesday by Chinese customs authorities showed that while the country’s June exports growth exceeded expectations, the 6.3% increase in monthly imports fell short of expectations. Read full story on the Chinese data.
The Australian dollar AUDUSD +0.2501% traded at $1.0243, up from $1.0194.
Deborah Levine is a MarketWatch reporter, based in New York.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
