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Tuesday, 31 May 2011

Dollar slips vs. euro on Greece aid hope

By Deborah Levine and Lisa Twaronite, MarketWatch

The dollar lost ground against the euro Tuesday after a report eased investors’ fears about Greece’s debt woes.

Both currencies gained on the yen after Moody’s Investors Service said it was reviewing Japan’s rating for possible downgrade.

The dollar index , which measures the U.S. unit against a basket of six major currencies, slipped to 74.630 from 74.941 in Asian trading Monday.

U.S. markets were closed Monday for Memorial Day and U.K. markets for a bank holiday.

The euro jumped to $1.4378 from $1.4271 Monday. See real-time currency quotes and tools.

The euro pared its gains after weak U.S. confidence data weighed on equities, reducing investors’ willingness to move away from the relative safety of the greenback into other currencies and riskier asset classes. See story on consumer confidence.

The Wall Street Journal reported Tuesday that Germany may consider abandoning a push to reschedule Greek debt early, which may pave the way for Greece to receive a new package of financial aid. Read more on Germany's stance on Greek debt.

“If the [Journal] report is confirmed by German officials, it could help remove the impasse surrounding Greece’s funding needs and ease the pressure” on the euro against the dollar, said Boris Schlossberg, director of currency research at GFT, in emailed comments.

However, others see a restructuring of Greek debt as highly probable and just a question of timing.

The euro has dropped 2.9% this month, its first monthly drop since November.

The dollar index has gained 2.4% this month.

“The political debate on how to shore up Greek finances shows no sign of being resolved, while Greek public opposition to austerity continues to run the risk of major social unrest,” said Brian Dolan, chief currency strategist at Forex.com. “Some form of Greek debt restructuring remains extremely likely, with only the timing open to question.

“With European data continuing to indicate a slowing ahead, we think the euro and risk sentiment in general remain vulnerable,” he wrote in a note.

Against the Japanese yen, the dollar rose to ¥81.24, up from ¥80.79
Monday.

Against the euro , the Japanese unit bought ¥116.83, up 0.7%.

On Tuesday, Moody’s put Japan’s Aa2 local and foreign-currency bond ratings on review for possible downgrade, citing faltering growth prospects and a weak policy response in the wake of the March earthquake-triggered disaster.

For the month, the dollar is little changed against the yen, while the euro has dropped 2.9% against Japan’s currency.

The British pound turned down to $1.6437, from $1.6478 late Monday.

Sterling has lost 1.6% this month against the dollar.
Aussie dollar, Chinese yuan

The Australian dollar dipped to $1.0651, down 0.7%, after downbeat economic reports. Data showed a wider-than-expected first-quarter current-account deficit and a fall in housing prices in most capital cities.

In May, the U.S. unit has lost 2.8% versus the aussie.

The Chinese yuan also hit a fresh record high against the dollar of 6.4810 in spot trading, according to reports, after the People’s Bank of China set its official parity rate for the unit at a new high for the fourth consecutive session.

The central bank reportedly set the yuan’s rate against the dollar at a record high of 6.4845, up from 6.4856 on Monday. The PBOC allows the yuan to trade in a range of 0.5% on either side of the parity rate.

Deborah Levine is a MarketWatch reporter, based in New York. Lisa Twaronite is MarketWatch's Tokyo bureau chief.

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