MW: Dollar rebounds as equities cede election gains
Greek worries limit euro gains, buoy dollar
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch)—The U.S. dollar regained its footing versus major rivals Wednesday as equity markets gave up gains initially scored in the wake of President Barack Obama’s election to a second term, while worries about Greece maintained pressure on the euro.
Also, the trading in currencies reflected jitters about the so-called fiscal cliff—a combination of major spending cuts and tax hikes that will automatically take effect early next year unless the White House and Congress can fashion a compromise—as the next big challenge for Washington, strategists said.
The dollar index DXY +0.24% , a measure of the U.S. unit against a basket of six major rivals, rose to 80.810 from 80.606 in North American trade late Tuesday.
U.S. stocks opened sharply and broadly lower on Wall Street, while European equities gave up initial gains.
The dollar initially softened on reinforced expectations that the Federal Reserve will continue with its program of monetary stimulus, which is seen as a negative for the dollar. Republican presidential challenger Mitt Romney, who lost to Obama on Tuesday, had sharply criticized the U.S. central bank.
“Obama’s re-election means political and Federal Reserve business as usual in the U.S.—but also means plenty of uncertainty surrounding the fiscal cliff,” said John Hardy, currency strategist at Saxo Bank in London.
Obama overcame a lackluster recovery to defeat Romney, while the House remained in Republican hands and Obama’s Democratic allies maintained majority control of the Senate. See: Obama captures second term as president .
A note of irony
“Ironically, the worse [the threat from] the fiscal cliff, the better the dollar will likely do because the U.S. dollar is so linked to global risk appetite and the threat of a U.S. recession would likely see the dollar appreciate” on safe-haven flows, Hardy said.
Strategists said jitters over Greece could also undercut risk appetite.
The euro EURUSD -0.44% gave up an early gain to trade at $1.2752 versus the dollar in recent action compared with $1.2817 late Tuesday.
Greece’s parliament is set to vote Wednesday on a package of austerity measures. These steps are seen as necessary to ensure the release of the latest round of aid to the country from its international creditors.
Failure to win approval for the of unpopular measures could leave Greece on track to run out of money later this month. News reports said Prime Minister Antonis Samaras appeared likely to narrowly win support for the measures amid the second day of a 48-hour strike by public-sector unions.
“With the Greek Parliamentary vote looming and tomorrow’s ECB meeting unlikely to announce new measures to ease credit risk in the region, we may see a more sustained selloff as fundamental risks heat up,” said Kathleen Brooks, research director at Forex.com.
“Below $1.2750 is a very bearish development for [the euro/dollar pair], which opens the way to $1.2610—the base of the daily Ichimoku cloud and a key support zone for this pair,” she said, referring to a technical analysis technique that uses a variety of data points to identify support and resistance levels.
Also Wednesday, the dollar USDJPY -0.62% bought 80.80 Japanese yen, up from ÂĄ80.36.
The British pound GBPUSD -0.09% fetched $1.5979, down from $1.6004.
The Australian dollar AUDUSD -0.14% traded at $1.0415, down from $1.0439.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
