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CURRENCIES: Dollar Dips, Euro Recoups As Greece Saga Continues

Date : 11/21/2012 @ 11:51PM
Source : Dow Jones News

CURRENCIES: Dollar Dips, Euro Recoups As Greece Saga Continues

By William L. Watts and Wallace Witkowski, MarketWatch

SAN FRANCISCO (MarketWatch) -- The U.S. dollar slipped and the euro regained its footing versus major rivals Wednesday 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), which measures the U.S. currency against a basket of six major rivals, eased to 80.937 in recent action from 80.957 late Tuesday.

The euro fetched $1.2822, little changed from $1.2821 on Tuesday, after having bounced off an intraday low of $1.2734 seen on the heels of a meeting of euro-zone finance ministers and IMF officials that lasted nearly 12 hours but broke up without an agreement on how to deal with 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," Cole wrote in a note to clients.

The dollar, meanwhile, continued its march higher against what's been a weakening Japanese yen , topping the  ¥82 level for the first time since early April as it pushed to  ¥82.38 from  ¥81.69.

Japanese data released Wednesday showed the economy 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 headed for a recession. .

The yen's been under heavy pressure of late 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 changed hands at $1.5938, slightly up 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 what minutes of the November meeting of the Bank of England's policy committee showed: that only one member voted against the nine-person panel's decision to hold the size of the quantitative-easing-oriented asset-buying program steady at  £375 billion, with the dissenter calling for a  £25 billion expansion.

The Australian dollar traded at $1.0353, down from $1.0389.

The WSJ Dollar Index , a measure of the U.S. currency against a slightly broader basket, rose to 70.89, up from Tuesday's close of 70.77.

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