Euro gets boost as banks slash demand for ECB's 12-month funds
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- The dollar headed Wednesday for a weak ending to cap off what's been a decidedly difficult quarter, put on the defensive by increased optimism over the global economic outlook, strategists said.
The dollar index (DXY 76.68, -0.44, -0.57%) , a measure of the greenback against a trade-weighted basket of currencies, fell to 76.342, down from 77.085 in North America on Tuesday afternoon.
The index is down nearly 4.4% on the quarter and is off 2% for the month.
In an unexpected move, the Commerce Department revised up its forecast of real U.S. second-quarter gross domestic product. The government said GDP fell 0.7% on an annualized basis, compared to an earlier estimate of a 1% drop.
Separately, the ADP employment report showed private-sector firms shed 254,000 jobs in September, the fewest positions lost since July 2008. Economists are expecting a decline of 167,000 in nonfarm payrolls when the Bureau of Labor Statistics releases its September estimate on Friday. See full story.
The dollar trimmed its loss slightly against the euro after the U.S. data but remained lower overall.
Earlier, the International Monetary Fund cut its estimate of crisis-related global losses on loans and investments to $3.4 trillion from an earlier forecast of $4 trillion.
The IMF, however, warned that banks have yet to recognize a massive chunk of expected write-downs and noted that policy makers will run big risks in attempting to unwind massive stimulus packages. See full story.
The report was read by the markets as an endorsement of a better growth outlook, said Jane Foley, research director at Forex.com.
A positive run of Asian economic data, including a 1.8% August increase in Japanese industrial production, also served to bolster recovery hopes, wrote strategists at Brown Brothers Harriman. See full story.
U.S. stock futures pointed to a broadly higher start for Wall Street. Equity gains have tended to translate into weakness for the dollar as traders seek higher-yielding returns.
In foreign-exchange dealings, the dollar bought 89.58 Japanese yen, little changed from 89.62 yen in North American trading.
The euro traded at $1.4632, up from $1.4581 late Tuesday.
The single currency gained ground after euro-zone banks significantly scaled back demand for one-year loans from the European Central Bank at the low repo rate of 1%. The ECB said it allotted around 75 billion euros ($109 billion) in loans to banks, compared to 442 billion euros at its first-ever, one-year fixed tender in June. See full story.
The ECB met all requests for loans as part of its ongoing efforts to use extraordinary measures to boost liquidity in the euro-zone financial system.
The lower-than-expected demand at the auction "may reflect a more healthy position of European banks," Foley said.
The beleaguered British pound traded at $1.6040, up from $1.5950.
Also on the economic front, the September consumer-confidence index produced by research firm GfK NOP on behalf of the European Commission posted a strong jump in September after stagnating for three months.
