Euro turns lower on worries about Ireland, Portugal

Currencies
March 22, 2011, 1:31 p.m. EDT
Euro turns lower on worries about Ireland, Portugal
British pound hits 15-month high after inflation data
NEW YORK (MarketWatch) — The U.S. dollar turned up against the euro Tuesday following speculation that Ireland was having trouble paying off its debt, bringing the sovereign-debt worries in the region back to the forefront.
Still, the British pound touched a 15-month high after a report showed inflation rose more than forecast, boosting traders’ expectations that the Bank of England will raise interest rates.
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The pound and Japanese yen’s gains left the dollar index /quotes/comstock/11j!i:dxy0 (DXY 75.41, +0.01, +0.01%) , a measure of the U.S. unit against a basket of six major currencies including both and the euro, at 75.441, up slightly from 75.406 late Monday.
The euro /quotes/comstock/21o!x:seurusd (EURUSD 1.4210, -0.0009, -0.0633%) fell below $1.42 then recovered a bit to trade at $1.4208, down from $1.4227 in North American trading late Monday.
It rose $1.4249 earlier, within hailing distance of the November 2010 high around $1.4282.
The shared currency turned down following speculation that Ireland was having trouble paying off its debt.
“There was a rumor of a skipped coupon payment from an Irish bank that may be associated with the euro mini sell-off,” said Steven Englander, a currency strategist at Citigroup.
Irish bonds sold off even though the rumor wasn’t true and Ireland doesn’t have any debt payments due this week, said Andrew Brenner, head of emerging markets at Guggenheim Securities.
“With Irish debt getting hit hard, it gives the Irish a stronger negotiating hand,” going into the highly anticipated meeting of euro-zone officials later this week, he said.
Leading up to that meeting, European finance ministers reached an agreement late Monday on the establishment of a new fund that will be able to lend around 500 billion euros ($710 billion) to troubled euro-zone countries beginning in 2013.
The agreement was widely expected. Tough negotiations remain ahead on enlarging the current bailout fund and other issues as European Union leaders prepare to meet for a summit on Thursday and Friday.
Also rocking the boat, Portugal appeared headed for a political crisis that strategists said could trigger new elections and force the country to follow Greece and Ireland in seeking an international bailout. Read story about Portugal.
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The euro had been up earlier as remarks Monday by European Central Bank President Jean-Claude Trichet and other policy makers reinforced conviction that the impact of Japan’s earthquake and tsunami won’t derail the ECB’s widely anticipated rate hike next month, strategists said.
The Japanese yen hovered near Monday’s levels as traders consider the threat of renewed intervention in currency markets. See story on Japanese yen.
The U.S. dollar /quotes/comstock/21o!x:susdjpy (USDYEN 80.9200, -0.1900, -0.2342%) bought 80.97 yen, down slightly from ¥81.05 late Monday. Read blog about yen intervention.
U.K. inflation, interest rates
The British pound /quotes/comstock/21o!x:sgbpusd (GBPUSD 1.6379, +0.0078, +0.4785%) jumped to $1.6379 from $1.6315. It rose as high as $1.6401, its loftiest since December 2009.
The pound gained after a report said consumer inflation rose at a surprisingly fast 4.4% annual pace in February, more than double the Bank of England’s 2% target. See more on British inflation.
Interest-rate expectations “have been coming off recently and rate hikes were not expected until late summer; previously they had been expected as early as May,” said Kathleen Brooks, research director at Forex.com.
“But after today’s inflation reading some earlier expectations of rate hikes are affecting the market and boosting sterling.”
Deborah Levine is a MarketWatch reporter, based in New York. William L. Watts in London and Virginia Harrison in Sydney contribted to this report.