MW: Dollar rebounds as data underline Europe fears
By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar rose versus the euro on Wednesday after a dismal purchasing managers’ index for the euro zone and Germany’s Ifo business-climate index underlined fears of a deepening downturn.
The ICE dollar index DXY +0.14% DXY +0.14% , which measures the greenback against a basket of six rivals, traded at 80.022, up slightly from 79.922 in late North American trading on Tuesday.
The dollar had gained ground in the previous session after downbeat U.S. corporate earnings undercut risk appetite. Read: Dollar rises as investor worries grip equities.
The euro EURUSD -0.27% dipped as low as $1.2919, according to FactSet, and changed hands at $1.2933 in recent trade, down from $1.2983 late Tuesday.
The euro extended a loss after the Markit preliminary euro-zone purchasing managers’ October index indicated private-sector business activity in the region contracted at its sharpest pace in 40 months and Germany’s closely watched Ifo business-climate index dropped to its lowest level since early 2010. See: Rising worries over Germany as Ifo falls .
“Both the manufacturing PMIs out of the major European economies and the German Ifo index of business climate were poor, which contributed to some determined selling down to a low near $1.2920,” said Michael Derks, chief strategist at FxPro. “Worryingly for euro bulls, the single currency has also lost considerable ground against other majors today.”
The euro dropped 0.7% versus the British pound GBPUSD +0.40% to 80.82 pence and was down 0.4% versus the Japanese yen EURJPY -0.26% at ÂĄ103.19.
Nevertheless, the euro’s recent weakness—the shared currency is down 0.7% versus the dollar since the start of the week—hasn’t done any major technical damage, Derks said. The shared currency remains in the tight $1.28-to-$1.32 band that’s been in place since just before the U.S. Federal Reserve announced last month the launch of a third round of quantitative easing. It would take a convincing break through key long-term moving averages, such as the 200-day at $1.2836 and the 50-day at $1.2817 to “suggest that the euro really is vulnerable again,” he said.
The Fed’s policy-making Open Market Committee is set to complete a two-day policy meeting later Wednesday. While the Fed may weigh whether to expand its bond-buying program at the end of the year, no final decisions are expected. See: Fed considers upping QE3 size and language .
Meanwhile, a more positive tone for risk appetite was set earlier Wednesday after the preliminary version of HSBC’s China manufacturing Purchasing Managers’ Index (PMI) for October rose to 49.1 on a 100-point scale, up from September’s final reading of 47.9. Read: China factory data add to soft landing view.
Anything above 50 represents expansion for manufacturing activity, while anything under 50 signals contraction.
The health of the Australian economy is closely linked to that of China, its key trading partner, and the Australian dollar AUDUSD +0.69% jumped to $1.0322, up from $1.0264 late Tuesday.
Strategists said that the release of Australian data Wednesday that showed third-quarter consumer price inflation rose at a faster pace than expected, as well as the stronger Chinese PMI survey, clouded the outlook for more interest-rate cuts from the Reserve Bank of Australia. Read more on Australian consumer prices.
“Ahead of this inflation report, consensus overwhelmingly expected a 25-basis-point cut at the Nov. 6 meeting,” said Annette Beacher, strategist at TD Securities.
“However, as we and the RBA must be flexible according to changing conditions, such as sticky inflation and better-than-expected Chinese activity data, we are changing our view, pushing out the next 25-basis-point rate cut to 3% from November and into early 2013,” she said.
The British pound GBPUSD +0.40% rose to $1.6013 from $1.5953.
Against the Japanese yen USDJPY +0.01% , the dollar changed hands for ÂĄ79.83, little changed from ÂĄ79.85 Tuesday.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Sarah Turner is MarketWatch's bureau chief in Sydney.
