Dollar tops 82 yen for first time since April
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch)—The euro regained its footing versus major rivals Wednesday, trimming a sharp loss against the dollar scored after euro-zone finance ministers and International Monetary Fund officials once again failed to reach a deal on aid for Greece.
The ICE dollar index DXY +0.14% , which measures the U.S. currency against a basket of six major rivals, stood at 81.019 in recent action, up slightly from 80.957 in North American trade late Tuesday.
The euro EURUSD -0.1486% fetched $1.2804, down from $1.2821 on Tuesday but bouncing off an intraday low of $1.2734 seen after a meeting of euro-zone finance ministers and IMF officials lasting nearly 12 hours broke up without an agreement on how to deal with Greece. See: Eurogroup to meet again after no pact on Greece .
They will reconvene on Monday.
“If there is one moderately encouraging element it is that the IMF is reported to have backed off slightly on its previous insistence that the debt-to-GDP [gross domestic product] ratio be on course for 120% in 2020, instead insisting on a more general condition of debt being sustainable,” said Adam Cole, head of G-10 foreign-exchange strategy at RBC Capital Markets in London.
“On balance, it is likely that some compromise will be reached on Monday by a combination of increased debt duration and reduced interest payments. However, should this not be the case, and with time running out, the reaction in FX markets will be immediately and substantially negative for risk and the euro,” he wrote in a note to clients.
The dollar, meanwhile, continued its march higher against the weakening Japanese yen USDJPY +0.81% , rising to ÂĄ82.35 from ÂĄ81.69 and topping the ÂĄ82 level for the first time since early April.
Data released Wednesday showed Japan posted its largest trade deficit for October in more than 30 years as exports to China continued to slump amid territorial tensions between Tokyo and Beijing, underlining worries that Japan’s economy is headed for a recession. See: Japan trade deficit jumps as exports to China fall .
The yen has been under heavy pressure amid expectations the main opposition Liberal Democratic Party will prevail in national elections next month. LDP leader Shinzo Abe has vowed to push the Bank of Japan to further ramp up monetary easing in a bid to battle deflationary pressures.
The LDP also wants to enact large-scale fiscal stimulus and to boost military spending, noted Michael Derks, chief strategist at FxPro in London, as Abe considers “dramatic measures for an economy that frankly has been contracting for the past two decades.”
In addition, if leaders in Washington get the U.S. fiscal house in order—admittedly a big “if,” Derks acknowledged in a note—safe-haven demand for the yen would evaporate.
“As we have been arguing for some time, Japan desperately needs a weaker currency. Further depreciation against the majors, especially the dollar, looks likely,” Derks wrote.
Also Wednesday, the British pound GBPUSD +0.04% fetched $1.5930, little changed from $1.5927 in the prior session, after initially trading in negative territory.
A larger-than-expected October budget deficit put the pound under pressure, while calling into doubt U.K. Chancellor of the Exchequer George Osborne’s 2012-2013 borrowing target of 120 billion pounds ($190.8 billion).
Losses were cushioned, however, by minutes of the November meeting of the Bank of England’s policy committee.
The minutes showed only one member of the nine-person panel voted against the decision to hold the size of the quantitative-easing-oriented asset-buying program at ÂŁ375 billion; David Miles had called for ÂŁ25 billion expansion. See: BOE voted 8-1 to maintain bond buys at ÂŁ375 billion
The Australian dollar AUDUSD -0.25% traded at $1.0363, down from $1.0389.
The WSJ Dollar Index XX:BUXX +0.26% , a measure of the U.S. currency against a slightly broader basket, rose to 70.92, up from Tuesday’s close of 70.77.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
