By William L. Watts and Sarah Turner, MarketWatch
LONDON (MarketWatch) — The dollar advanced against most major rivals Monday, with the euro backing away from a two-month high versus the U.S. unit after the Irish government’s weekend collapse.
The dollar index (DXY 78.28, +0.06, +0.08%) , which measures the U.S. unit against a basket of six other currencies, stood at 78.431, up from 78.114 in late North American trading Friday.
The euro (EURUSD 1.3593, -0.0046, -0.3373%) traded at $1.3576, down from $1.3623 late in Friday’s session.
The yield premium demanded by investors to hold 10-year Irish government bonds over German bunds widened modestly, but other peripheral euro-zone bonds saw only a limited reaction to political turmoil in Dublin. Read about Ireland's political turmoil.
On Sunday, Ireland’s Green Party pulled out as junior partner in the coalition government led by Prime Minister Brian Cowen’s Fianna Fail party, but said it would support legislation enacting the final measures from last December’s budget.
The austerity measures contained in the budget must be implemented under the terms of the 67.5 billion euro ($91.8 billion) rescue package agreed upon in November by the European Union and the International Monetary Fund.
The country’s two main opposition parties called on the government Monday to fast-track the vote in order to clear the way for a general election in February, Dow Jones Newswires reported. An election had previously been planned for March.
The reaction in financial markets was muted because “all political parties bar one very small party has agreed to pass the finance bill before the upcoming general election,” said Kathleen Brooks, research director at Forex.com.
European Central Bank President Jean-Claude Trichet, in an interview with The Wall Street Journal, reiterated a warning that inflation pressures must be watched closely, urging central bankers around the world to ensure rising food and energy prices don’t gain a foothold in the global economy.
On Friday, the euro hit its highest level versus the greenback since November on continued optimism that European officials were moving toward boosting the effective lending capacity of the euro-zone rescue fund, known as the European Financial Stability Facility.
Despite Ireland’s tribulations, “there seems to be growing optimism that somehow European leaders will cobble together some solution to deal with the debt crisis in Europe,” said Michael Hewson, market analyst at CMC Markets.
“While this sentiment prevails, there appears to be little to stop the single currency from continuing its recent rally after last week’s peripheral bond auctions went through without any major hiccups and spreads narrowed,” he said.
Against the Japanese currency (USDYEN 82.8400, +0.2900, +0.3514%) , the dollar traded at 82.87 yen, compared to ¥82.69 at the end of last week.
Sterling (GBPUSD 1.5956, -0.0038, -0.2376%) traded at $1.5944 Monday, down from $1.6014 in late North American trading Friday.
The Australian dollar (AUDUSD 0.9925, +0.0046, +0.4656%) rose 0.2% versus the U.S. unit to change hands at 99.15 U.S. cents.
