Euro tops $1.26 on central-bank report
NEW YORK (MarketWatch) -- The dollar declined on Thursday, with the euro jumping over $1.26 in afternoon action after a report indicated central banks are preparing for coordinated action to provide liquidity if necessary after Greece's elections this weekend.
The dollar declined during the session from a U.S. economic report pointed to weakness in the labor market, while Italy's need to pay very high borrowing costs at a debt auction kept the euro from benefitting much.
The dollar index (DXY) , a measure of the greenback against a basket of six major currencies, fell to 81.917, from 82.126 on Wednesday.
The euro (EURUSD) jumped to $1.2613, from $1.2579 in North American trade on Wednesday. It hasn't closed above $1.26 since late May.
The key event markets focused on for days range remains the Greek elections on Sunday.
Even thinking of coordination action indicates central banks fear the anti-bailout party will win, said Boris Schlossberg, co-head of global research at GFT.
The dollar turned down in morning activity after a report said first-time U.S. jobless claims rose more than expected in the latest week, to 386,000. Read more on jobless claims.
Separate data showed the government's consumer price index dropped a lot in May, but rose 0.2% excluding food and energy – roughly in-line with forecasts. See story on CPI
The dollar's decline after the data "is perhaps a sign that more quantitative easing is coming from the Federal Reserve," said Christopher Vecchio, a currency analyst at DailyFX.
However, he notes the Fed cares more about core inflation, which isn't moving down.
"Thus the decline in the U.S. dollar is nothing more than irrational exuberance," he said.
During the European session, eyes were on Italy. The country managed to sell the full amount of debt is sought out, and received plenty of demand, but paid much higher yields to do so. See story on Italy's bond auction.
The auction comes amid speculation that Rome may also be in line for a financial bailout.
Late Wednesday, Moody's Investors Service cut the sovereign credit ratings of Spain and Cyprus, keeping both on review for further possible downgrades.
"When ranges narrow like this it, can be a precursor to a coming storm," said Kathleen Brooks, research director at Forex.com. "Watch out for an explosive reaction to the Greek election/rising Spanish bond yields," which set new records Thursday.
"The markets seem poised to rally if there is an announcement of official action to sort out this crisis," she said. "However, the risk of disappointment is large."
Swiss central bank pins franc
As for other major currency pairs, the British pound (GBPUSD) also jumped to $1.5553 versus $1.5522 Wednesday.
Against the Japanese yen, the dollar (USDJPY) traded at 79.33 yen, little changed from ¥79.35, as the bank of Japan began its two-day policy meeting.
The Swiss franc briefly spiked up, then returned back to around 1.20 Swiss francs per euro after the Swiss National Bank repeated its pledge to enforce the minimum exchange rate of with the utmost determination.
In its quarterly assessment of monetary policy, the Swiss central bank reaffirmed its readiness to buy foreign currency in unlimited quantities for this purpose, according to Dow Jones Newswires.
The euro (EURCHF) bought 1.2015 Swiss francs compared with 1.2007 francs Wednesday.
The dollar (USDCHF) fell to 0.9524 Swiss francs, from 0.9548 francs in the prior session.
"The SNB left policy unchanged repeating its line on defending the Swiss franc cap with no details on further measures," said Elsa Lignos, senior currency strategist at RBC Capital Markets. "We expect the market will keep testing but the SNB will maintain its bid at 1.20."