February 20, 2013 / 5:56 PM / 5 years ago

FOREX-Euro pressured by weak stocks, commodities

* U.S. housing starts fall but single-family housing gains
    * Japan PM Abe backtracks on foreign bond buying
    * Sterling drops sharply after dovish BoE minutes
    * RBNZ governor says New Zealand dollar overvalued

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 20 (Reuters) - The euro fell against the U.S.
dollar, while the Australian, Canadian and New Zealand
currencies all slid on Wednesday, weighed down by weakness in
global stocks and commodities.
    Market participants cited talk of a hedge fund selling
assets as a factor for the decline in risk appetite, which drove
the dollar higher across the board. The dollar
index last traded up 0.3 percent at 80.741.
    "Risk has been taken off the table with the fall in stocks
and commodities. That has pressured the euro and commodity
currencies," said Vassili Serebriakov, currency strategist at
BNP Paribas in New York.
    Investors tend to sell higher-risk currencies such as the
euro and commodity-linked units like the Aussie and Canadian
dollars in times of increased aversion to risk.
    The euro fell 0.3 percent against the U.S. dollar to $1.3351
, while the Australian dollar dropped 0.7 percent to
US$1.0287 and the greenback rose 0.6 percent against the
Canadian dollar to C$1.0170.
    Global stocks dropped while commodities led by oil retreated
as U.S. Treasuries drew safe-haven bids, underscoring markets'
sensitivity to any talk of distress in the financial sector.
    The fall in investor risk appetite overshadowed the upbeat
mood earlier in the session following a generally positive U.S.
housing report.
    U.S. housing starts declined last month, but the fall was
due to the more volatile multi-family component, while the
single-family category rose to its highest since July 2008.
Building permits also increased at their quickest pace since
June 2008. 
    "Housing starts may have missed but they are still 
relatively high compared to where we are in the cycle," said
Brian Kim, currency strategist, at RBS Securities in Stamford,
Connecticut. "Overall, I would say housing starts and building
permits were generally constructive."
    The dollar rose against the yen following the U.S. housing
    The report's impact on the dollar/yen was a bit of a
surprise, as for the past few months, the currency pair has been
driven by Japanese monetary policy despite major U.S. data.
    The yen had gained on Tuesday on signs of a rift between
Japan Prime Minister Shinzo Abe and Finance Minister Taro Aso
with respect to foreign bond purchases. Aso had said that he was
not considering foreign bond buying, while Abe had indicated
that was an option.
    The disagreement suggested Japan's supposedly aggressive
monetary policy was less clear cut than before, which could slow
the pace of yen selling.
    On Wednesday, however, both Japanese officials seemed to be
on the same page. Abe mirrored Aso's stance, saying the need to
establish a public-private sector fund to buy foreign bonds has
    Foreign bond purchases would have helped push the yen lower,
so suggestions that Japan is no longer considering this helped
the currency.
    The dollar fell as low as 93.11 yen after Abe's
remarks, before recovering to trade at 93.50, flat on the day,
helped largely by the U.S. housing data.
    The greenback was still below a nearly three-year high of
94.42 hit on Feb. 11. The euro, meanwhile, was 0.1 percent
higher at 125.39 yen.
    Sterling, however, stole the limelight in the European
session, tumbling to its lowest in more than eight months
against the dollar and a 16-month trough against the
euro after minutes from the latest Bank of England
meeting showed policymakers were willing to ease policy
    The pound last traded down 0.8 percent at $1.5301, while the
euro last changed hands at 87.30 pence, up 0.6 percent on the
    Investors will now turn to the release of minutes from the
U.S. Federal Reserve's latest policy meeting. Any hint the Fed
is getting closer to paring back its asset purchase scheme could
help lift the dollar broadly. 
    Also on Wednesday, Reserve Bank of New Zealand governor
Graeme Wheeler said global imbalances and a weak U.S. dollar
were driving up the New Zealand dollar and had left the currency
overvalued compared to economic fundamentals. 
    As a result, the New Zealand dollar dropped 1.2 percent to 
US$0.8376 in midday trading. The fall in the kiwi was
also due to speculation about a hedge fund collapse.
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