Dollar gains on yen as Japan’s GDP slips to No. 3 behind China
By Deborah Levine and Polya Lesova, MarketWatch
NEW YORK (MarketWatch) — The euro fell against the U.S. dollar, hitting its lowest in three weeks, as investors grow more skeptical that a Monday meeting of European finance ministers will yield a comprehensive solution to the euro zone’s sovereign-debt crisis.
The dollar index (DXY 78.65, +0.19, +0.24%) , which measures the performance of the greenback against a basket of six currencies, rose to 78.735 from 78.379 late Friday.
The euro (EURUSD 1.3471, -0.0034, -0.2517%) sank to $1.3457, down from $1.3558 in late North American trading on Friday. See real-time currency quotes and tools.
The single currency fell to $1.3426, its lowest level since late January.
The euro also fell at least 0.7% against the British pound (EURGBP 0.8403, -0.0045, -0.5326%) and the Japanese yen (EURYEN 112.2400, -0.5900, -0.5229%) .
Euro-zone finance ministers will meet in Brussels at 5 p.m. local time to discuss the strengthening of the European Financial Stability Facility, the euro area’s rescue fund created in response to the debt crisis.
Numerous European officials have called for the improvement of the capacity of the fund and widening of the scope of its activities.
But leaders of Ireland’s opposition party, expected to win in next week’s election there, have said they want to renegotiate the bailout the country took to make more bondholders share the burden, according to media reports. That’s pushed peripheral bond yields up again, as investors make countries pay more to compensate them fro the risk of more uncertainty.
“A resurgence of pessimism over prospects for debt-reduction agreements has sent the euro to its weakest in three weeks,” said Andrew Wilkinson, senior market analyst at Interactive Brokers. “The euro is sharply lower following the weekend sparked by a whole new wave of discontent from several members who see things differently from their partners.”
The euro is still up 0.5% against the dollar this year as traders have bet that the Federal Reserve will take longer to raise interest rates, weighing on the greenback.
“Some of the single currency’s vulnerabilities — which were temporarily ignored in last month’s brief bout of euro-phoria — are now bubbling back to the surface again,” said strategists at FxPro in a note. “Eventually, reality will bite.”
The dollar also found some strength from traders expecting better economic data to raise U.S. yields, making the debt and currency more attractive to overseas investors.
This week, U.S. retail-sales data due out Tuesday and consumer price data on Thursday “will provide a gauge of whether the recent optimism in rates markets is justified,” said currency analysts at Barclays Capital in a Monday note to clients. Read more on U.S. data.
Barclays economists added they “expect slightly above-consensus numbers overall, which if realized would provide further support for the [dollar], in our view.”
Also Monday, the British pound (GBPUSD 1.6029, +0.0039, +0.2439%) was little changed at $1.6005.
Against the yen, the dollar (USDYEN 83.3100, -0.2300, -0.2753%) slipped to ¥83.40, off from ¥83.46 on Friday.
Earlier Monday, Japan’s Cabinet Office reported gross domestic product fell 1.1% in the October-December quarter on an annualized basis, marking the first economic contraction since July-September 2009.
The GDP data for 2010 confirmed that China’s economy has surpassed that of Japan, which it had already done on a quarterly basis. But the latest quarterly figure beat economists’ forecasts. Read more on Japan GDP.
