Currencies: Dollar gives back gains ahead of Beige BookPosted on Wednesday, May 16, 2012 - 13:01 pm
By Sue Chang and Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — The dollar fell against the euro Wednesday as stocks recovered and Spanish debt yields fell but pared losses slightly after a Federal Reserve report didn’t yield any new clues on a new round of quantitative easing, or QE3.
The ICE dollar index
, which measures the greenback against a basket of six currencies, traded at 79.791, firming from 79.766 ahead of the release but down versus 79.875 in late North American trading on Tuesday.
German government bonds’ new low
European markets are a little calmer with the euro actually rising. But that doesn’t prevent a poor German government bond auction. (Photo: Reuters.)
pared gains to $ 1.3102 from $ 1.3078 late Tuesday.
The Federal Reserve believes the U.S. economy is continuing to grow at a “modest to moderate pace” over the last month, according to the Beige Book. The phrase is the same one used to describe the economy in two previous reports.
Read story on Beige Book.
“The Fed’s Beige Book noted modest to moderate expansion for the economy, employment, inflation and residential real estate. With tepid comments like these, this book’s name is apt — beige,” noted Douglas Borthwick, managing director of Faros Trading, in emailed comments.
Anticipation of further supportive measures from the Fed had been building in the last week as policy makers have pointed to both a sluggish job market and problems in overseas financial markets as a risk to the U.S. economic growth outlook.
The dollar’s decline began during the Asian session, shortly after Alcoa Inc.
reported an unexpected first-quarter profit, supporting Asian stocks.
The safe-haven dollar dipped as “Asian stocks recovered off their lows, prompting a modest bias toward U.S. dollar underperformance,” said Sue Trinh, currency strategist at RBC Capital Markets.
A fall in Spanish and Italian yields supported U.S. stocks and the euro on Wednesday, but many analysts see it as a temporary blip as the outlook for Europe’s economy remains bleak.
See story on Spanish bonds.
“We’re pessimistic about Europe,” said David Rolley, a global bond portfolio manager at Loomis Sayles & Co. “The negative energy from fiscal contraction will outweigh” any positives of central bank activity.
The euro will have to weaken as part of a shift to make all of Europe – not just Germany – globally competitive and reduce trade and investment imbalances, he said.
“It will require sufficient monetary easing to weaken the euro” to get there, Rolley said.
Several Fed officials are also speaking this week.
Atlanta Fed President Dennis Lockhart said the weaker payrolls report for March doesn’t mean the recovery is coming off the rails,