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Feb 7, 2012

Stocks and Markets in the News | The Exhange rate war: Euro up to highest since mid-December


By Deborah Levine and William L. Watts, MarketWatch 

NEW YORK (MarketWatch) — The U.S. dollar fell against the euro on Tuesday, following reports that Greek government officials were putting together a detailed final document on measures needed to avoid default, against the backdrop of a nationwide strike. 

Greek political leaders will meet later in the day, at the same time that the country is working on finalizing a debt-swap deal with private creditors. 

The dollar index DXY -0.59% , which measures the greenback against a basket of six currencies, fell to 78.616 from as high as 79.265 and 79.064 last Monday in North America. 

The euro EURUSD +0.85% rose to $1.3245 compared with $1.3124 Monday. The shared currency last closed above $1.32 in mid-December.
Greek party leaders were set to meet Tuesday in an effort to come to terms on demands by the European Union and International Monetary Fund that the government impose a further round of sharp cutbacks to receive a second bailout.
Without the aid, Greece is seen as certain to default in mid-March. Read more about Greek negotiations.
“Although the creation of a final draft means that progress is being made in Athens, the document still needs to be discussed by party leaders who can still derail the talks by opposing key measures,” said Kathy Lien, director of currency research for GFT.
“Investors are optimistic but only cautiously so,” she added. “No one wants to be caught with any major positions until a deal is officially announced and approved.”
In testimony to Congress, Federal Reserve Chairman Ben Bernanke maintained his outlook for economic growth, which traders took as an indication that low interest rates and a weak dollar would continue. That boosted gold and U.S. stocks. Read more on gold, metals.

Australia, Japan surprise

The Australian dollar jumped after the Reserve Bank of Australia surprised traders by leaving its key policy rate unchanged at 4.25%, defying forecasts for another cut. See report on Australian rate decision.
The Aussie AUDUSD +0.57%  broke through the $1.08 level against the U.S. dollar to trade as high as $1.0822. The currency lately came back to $1.0785, up from $1.0731 on Monday.
It also gained 1% against the Japanese yen AUDJPY +1.00%  and 0.8% versus the New Zealand dollar AUDNZD +0.49%

“The currency is now at stretched levels, and we would look to fade any move higher from here. In fact, on Monday we entered a trade recommendation to go short the Australian dollar via a [three-month Australian dollar put/U.S. dollar call option], taking advantage of the recent decline in volatility,” said Chris Walker, currency strategist at UBS. 

A call option gives a trader the right but not the obligation to buy the underlying product at a certain price. Likewise, a put option provides the right but not the obligation to sell

Japan’s currency reversed direction, however, falling against the dollar after reports said the Japanese government and central bank conducted ¥1 trillion ($13 billion) worth of unannounced forex intervention in early November to drive the yen lower. Read more on Japan’s intervention. 
In Tuesday trading, the dollar USDJPY +0.45%  rose to ¥76.96, up from late Tuesday’s ¥76.58 level.
Meanwhile, Swiss National Bank acting chairman Thomas Jordan on Tuesday reiterated that the central bank is prepared to act any time to defend its cap on the value of the Swiss franc, pushing the euro EURCHF +0.27% up 0.3% against the franc. Read more on Swiss intervention warning. 
The British pound GBPUSD +0.40%  rose to $1.5887 from $1.5830 Monday. 

Deborah Levine is a MarketWatch reporter, based in New York. William L. Watts is a reporter for MarketWatch in Frankfurt. MIchael Kitchen in Los Angeles contributed to this report.

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