MW: Dollar mixed, while triple-dip fears sink pound
By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The dollar posted a mixed performance versus major rivals Tuesday, while the British pound tumbled after dismal industrial production figures underlined fears of a triple-dip recession.
The ICE dollar index DXY -0.23% slipped to 82.496 in recent trade, compared with 82.601 in late North American action on Monday.
The WSJ dollar index XX:BUXX -0.14% , which measures the greenback against a slightly wider basket, fell to 73.63 from Monday’s close of 73.69.
Sterling stole the show GBPUSD -0.23% , tumbling as low as $1.4830 versus the dollar after data showed January U.K. industrial production and manufacturing output dropped more than expected. The pound traded at $1.4898 in recent action, down from $1.4919 late Monday.
The U.K. Office for National Statistics said industrial production saw a 1.2% monthly fall in January, while manufacturing output declined 1.5%. Economists surveyed by Dow Jones Newswires had forecast both measures to rise by 0.1%.
“The short-term British pound momentum is against us and we would hold off from trying to position for any recovery until we get a string of upside surprises,” said Elsa Lignos, currency strategist at RBC in London.
London’s benchmark FTSE 100 stock index UK:UKX +0.13% , meanwhile, barely budged, suggesting investors see the data as boosting prospects for more stimulus by the Bank of England, said Ilya Spivak, currency strategist at DailyFX.
But the Australian dollar AUDUSD +0.44% rose to $1.0279 from $1.0266 late Monday.
Against the Japanese yen USDJPY -0.26% , the dollar slipped to ¥96.08 from ¥96.30 in late trading Monday.
The dollar had earlier risen to its highest level versus the yen since August 2009, boosted by a Japanese news report that an unscheduled Bank of Japan policy meeting could take place after new leadership assumes office on March 20, wrote strategists at UBS.
“At the very least, this possibility has now been planted in the minds of investors, meaning [dollar/yen] is likely to stay bid in the lead-up to the transition of power,” the UBS strategists wrote.
The euro EURUSD +0.14% , meanwhile, changed hands at $1.3040, little changed from $1.3037 on Monday.
The Aussie has also been making headway against the yen and the British pound. It hit a level not seen since February 1985, of 69.34 pence on Tuesday against sterling, for a year-to-date gain of 7.8%.
In yen terms, the Australian dollar reached ¥99.15, up 10.6% since the start of the year.
Volatility gauge eases
Stan Shamu, strategist at IG Markets, discussing the move in the Aussie, noted a drop in the VIX volatility gauge on Monday to below the 12 level for the first time since April 2007, which he said “shows just how much confidence the markets are displaying.”
The Dow industrials DJIA -0.08% recently hit an all-time high and the S&P 500 SPX -0.13% could soon also touch a record.
Shamu said that the low VIX levels could “represent a red flag to the contrarians. However, on the other side of the coin, perhaps this is a green light for those looking to pick up a carry in the forex market, which is one of the key factors keeping Australian dollar/U.S. dollar supported in the face of poor weekend Chinese data.”
The carry trade is a term coined to describe borrowing in one low-yield currency to pick up a higher yield elsewhere. Australia’s key interest rate — although much lower than where it was 18 months ago — is still among the highest in the developed economies.
Alvin Pontoh, strategist at TD Securities, noted that three-year Australian government-bond yields recently rose above the Reserve Bank of Australia’s 3% cash rate — a move that could reflect changing interest- rate expectations.
“History tells us that a rise of three-year yields above the RBA cash rate is a signal that the easing cycle is ‘close to an end’ but is not necessarily ‘the end,” he said.
Still, he’s staying cautious ahead of Thursday’s employment report, which he said “could provide a catalyst for a reversal of recent moves.”
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
Sarah Turner is MarketWatch's bureau chief in Sydney. Follow her on Twitter @SarahTurnerMKTW.
