Wednesday, Nov 17, 2010


 
   By Andrew J. Johnson 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The euro eeked out a small gain against the dollar Wednesday helped by a weak U.S. economic data, supporting the Federal Reserve's argument for quantitaive easing.

But despite the disappointing data, the euro continued trading at seven-week lows against the dollar, while the dollar is trading at highs against the yen last seen Oct. 5. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, is also at seven-week highs.

Overnight, the dollar had continued recent gains against the euro based on the sovereign debt crisis in Ireland. Speculation that Beijing will move again to tighten monetary policy further also aided the tailwinds of the save-haven greenback.

On the data front, the October consumer price index rose 0.2%, the third consecutive month that higher energy costs helped to push prices up. Economists surveyed by Dow Jones Newswires had expected a 0.3% gain. Significantly, core consumer prices have not moved since July.

Housing starts fell 11.7% in October to an annual rate of 519,000--the lowest since 477,000 in April 2009. Economists had expected a small drop to 600,000.

Since inflationary concerns--or a lack thereof--are one of the Fed's primary reasons to embark on new quantitative easing, market participants were especially focused on the new inflation figure.

Growing voices of discord on the wisdom of the Federal Reserve's new $600 billion Treasury-buying dollar-diluting stimulus plan may subside after this data, said analysts.

To the contrary, "concerns about an extension of the quantitative easing [could] take hold on the markets," say Commerzbank analysts in Frankfurt.

Wednesday morning, the euro was at $1.3495 from $1.3490 from late Tuesday, according to EBS via CQG. The dollar was at Y83.35 from Y83.28, while the euro was at Y112.54 from Y112.35. The U.K. pound was at $1.5906 from $1.5889. The dollar was at CHF0.9938 from CHF0.9954.

The Dollar Index was at 79.145 from 79.199.

Market participants Wednesday will likely take their cue from actions and words that emerge from Dublin, and remain very unsettled as talk of a potential EUR100 billion bailout for Ireland has emerged.

"One of the most important issues for traders and investors is whether some sort of package for Ireland would arrest the crisis," said Brown Brothers Harriman analysts in New York. "We are less sanguine and are concerned that pressure will mount on Portugal and increasingly Spain."

European and International Monetary Fund officials will travel to Dublin to look at an Irish aid package that may include activating the European Financial Stability Facility, the EU's emergency loan program established earlier this year to help euro-zone countries refinance their debts.

Irish Finance Minister Brian Lenihan has said "intensive engagement" will begin Thursday between the country and its EU partners to discuss the best ways to support the Irish banking system.

The cost of insuring European sovereign debt against default rose Wednesday.

Early Wednesday morning, Ireland's five-year CDS spread was 20 basis points wider at 540 basis points, slightly tighter than the opening level. This means it now costs can average of $540,000 a year to insure $10 million of debt issued by the country. 


 
   Canada Morning

The Canadian currency held steady in quiet overnight trading, and saw a modest rally as the deluge of U.S. data refreshed investors' appetite for riskier assets.

The U.S. dollar was at C$1.0215, from C$1.0224 late Tuesday, according to CQG.

The Canadian currency has moved lower this week along with other growth-sensitive currencies and riskier assets in general. Investors are nervously balancing two opposing forces, as uncertainty about the Fed's asset-purchase program weighs on the dollar and the sovereign debt crisis weighs on the euro.

-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com

-Art Patnaude, Matthew Dalton, and Karen Johnson contributed to this article.

(END) Dow Jones Newswires

November 17, 2010 09:09 ET (14:09 GMT)