Sovereign-debt worries and weaker PMI readings pressure single currency
By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar hit a five-month high versus the euro and gained on other currencies amid continuing sovereign-debt worries in the periphery of the euro zone and further signs that the region's recovery is losing momentum.
The dollar received a general boost as strong economic data from China raised concern that Beijing may tighten policy.
The dollar index (DXY 78.51, +0.17, +0.21%) , a measure of the U.S. unit against a trade-weighted basket of rivals, rose to 78.574 from 78.355 in North American trade late Wednesday.
The euro fell for a seventh session, to $1.4068 from $1.4107 on Wednesday.
The dollar rose to buy 91.46 Japanese yen, versus 91.27 yen late Wednesday.
"The dollar is up sharply and universally on risk aversion due to concerns about Chinese policy tightening and continued flight from exposure to Greece and Europe," said T.J. Marta, chief market strategist at Marta on the Markets.
Still, mixed data in the U.S. served to reduce the dollar's gains in the European session. A report showed U.S. jobless claims unexpectedly rose to 482,000 in the latest week. See more on jobless claims.
The dollar pared its gains further after the Philadelphia Federal Reserve's manufacturing index fell more than expected this month and an index of leading indicators for December rose 1.1%. Read about Philly Fed.
Greek tragedy
The gap between yields on 10-year Greek government bonds finally narrowed versus their German counterparts, the euro-zone benchmark, after widening to beyond 3 full percentage points Wednesday. The spread widened markedly in recent days, signaling that investors were more skittish about holding the Greek debt.
Greek Finance Minister George Papaconstantinou on Thursday denied a report in the European Voice newspaper that European Union officials were exploring the prospect of a loan in an effort to avert Greece turning to the International Monetary Fund. The finance minister said Greece would not need outside help and would manage to meet its borrowing needs on its own, reports said. Read about Greece's credibility gap.
"The euro has clearly become a full Greek tragedy and a self-fulfilling prophecy, with whatever bad news (lower U.S. stocks, China's tighter monetary policy) being an excuse to sell," wrote strategists at UniCredit Bank in Milan.
The euro fell as low as $1.4028, its lowest level since August, after a preliminary euro-zone composite purchasing-managers index for January slipped, raising questions about the momentum of an already-tepid euro-zone recovery. Read about the January PMI data.
Meanwhile, worries about debt problems elsewhere in the periphery of the euro zone mounted after the IMF late Wednesday warned that Portugal's deficit would rise to 8.6% of gross domestic product from around 8% this year if it doesn't pursue tough budget measures.
Chinese data
The Chinese data put pressure on Asian equity markets, boosting the appeal of lower-yielding currencies.
The report showed economic growth powered higher in the fourth quarter, putting the full-year figure above forecasts. But inflation surprised to the upside, suggesting fiscal and monetary policy tightening could be ahead. See full story on Chinese economic data.
The Chinese data were "slightly stronger than expectations but not alarmingly so," said Patrick Bennett, forex strategist with Societe Generale.
China's "economy is growing firmly, and this is an outcome China wants. Nevertheless, the policy will be tweaked to ensure the economy does not grow too fast."
