Sterling slumps as BOE's King offers gloomy economic outlook
By William L. Watts & Lisa Twaronite, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar was higher versus most major rivals Tuesday, gaining ground as a drop in German business confidence and consumer sentiment in the U.S. increased concerns about the durability of the global economic recovery.
The dollar index (DXY 80.74, +0.23, +0.29%) , which measures the U.S. unit against a trade-weighted basket of six major currencies, rose to 80.743, up from 80.513 in late North American trading Monday.
The euro (CUR_EURUSD 1.36, 0.00, -0.34%) bought $1.3545, down from around $1.3609 in North American trade late Monday.
The dollar stayed up and U.S. stocks dropped after the Conference Board's consumer confidence index sank 11 points to 46.0 in February from an upwardly revised 56.5 in January. Economists surveyed by MarketWatch, who were looking for a slight drop to 55.5 points from the previously reported January level of 55.9. See story on consumer confidence.
"Tuesday is starting out to be another one of those when investors turn to the solace of the dollar when they suddenly appear to run out of reasons to buy an alternative," said Andrew Wilkinson, senior market analyst at Interactive Brokers.
The dollar was up before the U.S. data as the Ifo Institute German-business-sentiment index declined for the first time in 10 months, raising further questions about the pace and sustainability of the recovery by the euro-zone's largest economy. Read about the Ifo index slump.
The euro, which has slumped around 6% versus the dollar since January amid fears over Greece's ability to meet its debt obligations, had rebounded in early European action on news reports that the Dubai government was set to provide an additional $5 billion to state-owned Dubai World.
Strategists at BNP Paribas said talk of an additional Dubai World bailout provided an early boost to the market's risk appetite, but said the euro would likely remain weighed down by ongoing nervousness over Greece.
However, data showing record short positions against the euro in the currency futures markets suggest there's a risk the single currency could see a short-term spike higher, although a rebound would likely be limited to around $1.3850, they said.
British outlook
Meanwhile, Bank of England head Mervyn King offered a very cautious outlook for the British economy and said the recovery in the 16-nation euro zone -- Britain's biggest trading partner -- appears to have stalled. Read about King's testimony.
The British pound (CUR_GBPUSD 1.54, 0.00, -0.22%) fell 0.4% to $1.5414 versus the dollar. The euro erased an early grain to trade little changed versus the pound at 87.88 pence.
"The combination of slow growth, terrible public finances and the risk of a hung parliament after the spring election is not a good one for the pound," said Jane Foley, research director at Forex.com. "Add to this the fact that recent U.S. economic data have been on the firm side, which has been lifting speculation that the Fed will be hiking rates ahead of other major central banks, and the outlook for the pound versus the dollar remains poor."
King also left the door open to an eventual resumption of the central bank's quantitative-easing program, which was put on hold in February after the completion of 200 billion pounds of bond purchases since March of last year. Resumption of the money-printing program would be another negative for the pound, analysts said.
Japanese yen
The dollar dropped versus the Japanese currency, meanwhile, as the yen has typically been deemed even safer than the U.S. dollar when investors want to step away from riskier assets.
The dollar (CUR_USDYEN 90.24, -0.96, -1.05%) fell 1.1% to buy 90.18 yen, down from 91.14 yen Monday.
A summary of the Bank of Japan's Jan. 25-26 policy board meeting released Tuesday "revealed concern over Japan's fiscal position, and it wanted to maintain the public's trust in fiscal and monetary policy," said strategists at Action Economics.
"Some members expressed the view that for individual countries -- including Japan, for which the fiscal situation was serious -- to be able to conduct appropriate policies while ensuring market stability, it had become all the more important to maintain market confidence in the conduct of both fiscal policy and monetary policy," the BOJ summary said.
