By William L. Watts, MarketWatch
FRANKFURT (MarketWatch)â€"The euro gave up early Wednesday gains inspired by the Bank of Japan’s decision to inject further stimulus into the economy, pulled down as German officials reportedly sought to water down proposals for a European banking union and a supervisory role for the European Central Bank.
The euro /quotes/zigman/4867933/sampled EURUSD -0.3146% traded at $1.3003, down from $1.3042 in North American trade late Tuesday and off from an intraday high of $1.3085 scored in the wake of the Bank of Japan’s action. The euro temporarily touched a session low of $1.2998, according to FactSet Research data.
Dow Jones Newswires reported that the German government isn’t only insisting on a strict separation of bank supervision and monetary policy in Europe, but also wants a separate body that would give large states more say on supervisory questions. Read: Germany favors separate body for bank supervision .
A report by Reuters said lawmakers from Germany’s ruling coalition are planning to propose that the European Central Bank’s new supervisory powers would apply only to systemically-important banks and cross-border institutions.
Proposals for a strong banking union are seen by some “as a critical foundation for a sound currency,†said Boris Schlossberg, managing director at BK Asset Management. “Therefore, any proposals to diminish the ECB’s supervisory authority is viewed very negatively by the market,†he said.
Earlier, the yen mostly dropped after the Bank of Japan moved to further ease monetary policy by expanding its own asset-purchase program. The central bank’s move bolstered global equities, undercutting demand for such safe-haven currencies as Japan’s yen and the U.S. dollar.
The dollar index /quotes/zigman/1652083 DXY +0.25% , which measures the greenback against a basket of six rivals, rebounded from an earlier loss to 79.350 versus 79.226 late Tuesday in North America. The WSJ dollar index /quotes/zigman/9625991 XX:BUXX +0.18% rose to 69.44 from a Tuesday close of 69.30.
The yen also regained its footing after posting knee-jerk declines.
The dollar /quotes/zigman/4868099/sampled USDJPY -0.0733% rose as high as ¥79.22 before retreating to ¥78.88, little changed from ¥78.89 late Tuesday. The euro /quotes/zigman/4868097/sampled EURJPY -0.3728% erased an early rally to fall 0.2%, changing hands at ¥102.62, while the British pound /quotes/zigman/5029853/sampled GBPJPY -0.3645% eased 0.1% to ¥127.84.
Coming less than a week after the Federal Reserve announced it would embark on a third round of quantitative easing to underpin the U.S. recovery, the Bank of Japan on Wednesday said it would provide more monetary stimulus in response to a slowing domestic economy. The bank said it would increase the size of its asset purchases by ¥10 trillion ($126.7 billion) to a total of about ¥80 trillion. Read: Bank of Japan adds to stimulus .
“Investors had been aware of the possibility of such a move but it had not been fully priced into the market. Consequently, the yen took a hit when the BOJ made its announcement,†noted strategists at Moneycorp in London.
‘Risk rally’
The move helped revive a “risk rally†that had been fueled in part by last week’s Fed move and the European Central Bank’s announcement earlier this month of a bond-buying plan, but had started to stall as Spain continues to hold off on requesting help from the euro zone’s rescue funds. An aid request is a prerequisite for triggering the European Central Bank’s bond plan.
While Japanese authorities heralded the Bank of Japan’s move for weakening the yen, the potential for European worries to move back onto the radar could continue to provide the yen with unwelcome support, said Lutz Karpowitz, strategist at Commerzbank, in a note to clients.
“It will have to be seen whether this happiness is going to last long. Now that sentiment in Europe seems to deteriorate slightly the yen might be in demand as a safe haven again,†Karpowitz said.
Also Wednesday, the pound /quotes/zigman/4867886/sampled GBPUSD -0.2907% changed hands at $1.6211, down from $1.6245.
The Australian dollar /quotes/zigman/4867876/sampled AUDUSD -0.1187% slipped to $1.0434 versus its U.S. counterpart, off from $1.0444.
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William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Good post, I always look for such post to keep myself upto date about latest happening across the globe. Thank you for the blog
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