A short summary of recent markets sentiment ....
NEW YORK (Dow Jones)--The euro declined against the dollar and yen Monday as investors renewed their scrutiny of the euro-zone periphery nations, especially Ireland.
Many investors pared aggressive bets in favor of the common currency due to debt problems in Ireland, Portugal and Spain, analysts said. The cost of insuring against sovereign debt defaults for those nations went up overnight.
The euro fell 0.7% Monday against the dollar--regaining some earlier losses in afternoon New York trading--and 0.7% against the yen.
Euro-zone concerns were revived as the market moved from speculating about--and reacting to--the Fed's quantitative easing plan, which was unveiled last Wednesday.
Credit default swaps, or CDS, are derivatives that function like an insurance contract for a debt default. If a borrower defaults, the CDS seller compensates the buyer of the debt.
CDS costs on Irish, Portuguese and Spanish sovereign debt were all higher early Monday. The annual cost of insuring EUR10 million of Irish debt for five years rose by EUR17,000 to EUR606,000, while the cost for Portuguese debt increased by EUR11,000 to EUR460,000 and the cost for Spain climbed by EUR12,000 to EUR260,000. CDS risk--and the underlying fiscal uncertainty--of the nations in the euro-zone's geographic periphery contrasts with the economic strength of those nations at the euro-zone's core, such as Germany and France.
Outside of Greece, fear of an Irish bond default is the greatest in the euro zone--and that could harm the nation in the long term, said Flavio Giust, senior vice president and manager of institutional foreign exchange at KeyBank in Cleveland.
"The ability to borrow will still be there but it will be at a much higher price," when Ireland returns to the bond market next year, he said.
Early Monday afternoon, the euro was at $1.3933 from $1.4029 from late Friday, according to EBS via CQG. The dollar was at Y81.24 from Y81.35, while the euro was at Y113.25 from Y114.15. The U.K. pound was at $1.6133 from $1.6199. The dollar was at CHF0.9657 from CHF0.9628.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 77.002 from 76.606.
The cost of insuring Greek sovereign debt actually fell Monday after the ruling Socialists won local elections in a majority of Greece's 13 electoral regions. The victory provided some confidence in the existing Greek government, which is pushing austerity measures.
Beyond widening CDS, the Irish concern was amplified with uncertain passage of a proposed 2011 budget, which calls for another EUR6 billion in spending cuts and new taxes, said analysts.
"A government majority is needed to pass that new budget through Parliament in December," and that majority is razor-thin, causing concern in the market, said Jane Foley, senior foreign exchange strategist at Rabobank in London. "Ireland has had to swallow a huge pill of austerity already and this will be a continuation of deep cuts, and require a fair amount of pain for the Irish people."
Traders were awaiting possible new remarks from European Union Commissioner for Economic and Monetary Affairs Olli Rehn Monday, who was in Dublin discussing the austerity plan with Irish officials.
His support of a new Irish budget, including severe cuts, is well-known, said Foley.
A broader retreat from riskier assets was seen Monday, following weeks' of dollar selling based on the expected Federal Reserve stimulus that aims to flood the U.S. economy with dollars. The Fed announcement last Wednesday ended weeks of speculation about quantitative easing, taking away the laser-like focus of the market on the issue.
"The overall unsettled market conditions have negatively impacted the commodity and emerging currencies as well," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.
The New Zealand dollar was particularly hard-hit trading off by 0.8% versus the U.S. dollar.
Investors were likely not impressed by a new survey showing New Zealand's October average property value rose by 1.1% year-over-year, demonstrating slow growth, said analysts.
-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; [email protected]
, each stay in their comfort zone.
I read the Russian news, sometimes).