MW:Euro straddles $1.22-level after Italy’s downgrade
By William L. Watts and V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The euro straddled the $1.22-level on Friday after Moody’s Investors Service cut Italy’s government bond ratings by two notches and the country’s Treasury sold new three-year bonds.
The U.S. dollar edged lower against many global rivals after Chinese economic data matched expectations.
The euro EURUSD -0.14% changed hands at $1.2193, little changed from $1.2197 in North American trade late Thursday.
The 17-nation shared currency had earlier in the day dropped as low as $1.2179, after Moody’s cut Italy’s bond rating to Baa2 from A3, with a negative outlook. Moody’s said the government in Rome is more likely to experience a sharp increase in funding costs, or the loss of market access, and that its near-term economic outlook has deteriorated. Read more about Moody’s downgrade.
Italy, however, managed to sell 3 billion euros of new three-year bonds in a closely-watched auction.
Although not directly comparable, the sale produced a yield of 4.65%, down from 5.30% in a sale of other three-year bonds in June. Borrowing costs were expected to fall after Italian yields retreated from crisis levels following a European Union summit late last month.
“We hit our target in EURUSD at $1.2188 [and] entered into a short covering at $1.2688. This would have the relevance of a fly on a cake, if it didn’t represent a broader theme in the market that initial targets have been reached,” leaving euro shorts overstretched, said Sebastien Galy, strategist at Societe Generale, in a note.
Meanwhile, the ICE dollar index DXY +0.09% , which measures the greenback’s performance against a basket of major currencies, traded at 83.64, down slightly from 83.67 in North America Thursday afternoon.
The modest decline, reflective of improved risk appetite, came after Chinese data released earlier in the day showed the nation’s economy expanded 7.6% in the second quarter from the same period a year earlier. While the print represents a sharp slowdown from the 8.1% growth in the first quarter, it matched economists’ estimates and helped eased concerns of an overly-rapid slowdown. Read full story on China GDP.
Among other major currency pairs, the dollar USDJPY -0.06% was fetching 79.22 yen against the Japanese unit, down from the ÂĄ79.33 level seen in New York trade Thursday.
The British pound GBPUSD +0.29% changed hands for $1.5482, up from $1.5429, while the Australian dollar AUDUSD +0.33% climbed to $1.0165 from $1.0138.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
