By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch)—The U.S. dollar erased early weakness Tuesday, finding modest, safe-haven-related support as European and U.S. equities declined after the International Monetary Fund cut its forecasts for global growth and sounded the alarm over a world-wide slowdown.
The ICE dollar index DXY +0.19% , which measures the dollar against a basket of six currencies, traded at 79.741, up from 79.595 in late trading the previous session.
“It seems clear that from a growth perspective the dollar looks better supported than European currencies, and with positioning now close to square in the euro, new impetus is required to extend the dollar decline of the last few months,” wrote strategists at Lloyds Bank in London.
The IMF on Tuesday cut its 2012 forecast for global growth to 3.3% from a 3.5% forecast made in July, while the 2013 forecast was cut to 3.6% from 3.9%. The IMF said France, Spain and several other euro-zone governments won’t hit budget-deficit targets agreed with European authorities. See: IMF: Key euro-zone nations to miss deficit targets .
The report comes as a meeting of IMF and World Bank officials gets under way in Tokyo.
The IMF also warned that U.S. growth could stall in 2013 if politicians fail to avoid the so-called fiscal cliff, which could “inflict large spillovers on major U.S. trading partners and also on commodity exporters.”
The euro EURUSD -0.32% declined to $1.2939 from $1.2973.
A meeting of euro-zone finance ministers late Monday produced a widely expected agreement to release the latest disbursement of aid for Portugal but provided no evidence Spain is moving closer to requesting a full bailout or that officials were set to resolve questions over the release of the next round of aid for Greece. A meeting of European Union finance ministers was under way Tuesday morning.
Meanwhile, German Chancellor Angela Merkel is visiting Athens Tuesday.
The European Stability Mechanism, the euro zone’s permanent rescue fund, was officially established on Monday, “so all the mechanisms are now in place for the [European Union] to provide emergency support to countries that are experiencing excessively high yields,” the Lloyds strategists said.
“But at the moment, Spain and Italy remain disinclined to ask for help, leaving the markets in limbo,” they said, with the euro likely to remain confined to a range of $1.2870 to $1.3070.
The euro EURCHF +0.04% jumped versus the Swiss franc in early action. Analysts cited a news report that a custodian bank planned to impose negative interest rates on Swiss franc and Danish krone deposits beginning Nov. 1.
The euro traded at 1.2108 Swiss francs in recent action, a daily gain of 0.1%, after hitting an intraday high of CHF1.2143 in earlier action.
“We doubt the news will have a lasting weakening effect on the Swiss franc, however, given that interest rates have been negative in the interbank market for months, and those who wish to hold Swiss franc deposits for safe-haven reasons are unlikely to be deterred by a 25-basis-point penalty,” said Gareth Berry, strategist at UBS.
The British pound GBPUSD -0.08% traded at $1.6014, down from $1.6031, and the Australian dollar AUDUSD +0.15% advanced to $1.0207 from $1.0177 late the previous session.
Earlier, risk-oriented currencies rose, and the dollar weakened, after the People’s Bank of China injected a large dose of liquidity into the Chinese banking system, raising optimism for further policy moves. See: Shanghai, Hong Kong stocks jump to lead Asia.
China’s central banking chief highlighted worries that the mainland economy is facing big downward pressure and said monetary policy must remain flexible and set with a pre-emptive bias to help counter the weak external environment. See: PBOC's Zhou pledges flexible policy.
Against the Japanese currency USDJPY -0.12% , the dollar traded at 78.30 yen, little changed from ÂĄ78.32 in late North American trading on Monday.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Sarah Turner is MarketWatch's bureau chief in Sydney.
