ABC: Dollar Gains as Ratings Agencies Warn on Europe
Dollar gains as ratings agencies warn on Europe, Britain's trade deficit widens
The dollar rose Tuesday against the euro and the British pound as credit ratings agencies sounded warnings on Europe.
Greek Prime Minister George Papandreou is also scheduled to meet Tuesday with President Barack Obama and the International Monetary Fund in Washington.
Greece's recent debt troubles have roiled credit markets in the 16 countries that use the euro and threatened the stability of the region's monetary union.
Greek officials want to see the United States impose stricter regulations on hedge funds and currency traders. Papandreou has said traders aggravated Greece's debt crisis.
In morning trading Tuesday in New York, the 16-nation euro dropped to $1.3583 from $1.3633 late Monday.
The British pound fell to $1.4990 from $1.5072 after the U.K. said its trade deficit widened in January because of a steep drop in exports.
But the dollar slipped to 89.90 Japanese yen from 90.32 yen.
Credit ratings agency Fitch Ratings said a sovereign default in one of the 16 nations that use the euro was possible, said Geoffrey Yu of UBS in a research note.
Moody's Investors Service said British banks could be downgraded as the U.K. reels in public support, while Fitch said the British government needs to move faster to tamp down deficits, said Brown Brothers Harriman analysts.
In the U.S., the Fed on Monday took another step to drain emergency liquidity from markets, a sign that financial conditions have improved.
The central bank has been slowly reeling in its emergency lending programs, put in place during the financial crisis, that helped keep credit flowing. At the same time, it has continued to say that it will leave interest rates at their current rate near zero as the economic recovery from the recession remains weak.
Higher interest rates can boost a currency as investors transfer funds to where they can earn higher returns.
"The apparatus for an eventual exit is clearly being assembled," Yu said. "Signs that the Fed is readying itself for eventual policy normalization should remain beneficial for the dollar."
