World () - The U.S. dollar gained ground versus most major rivals on Friday as investors sold the euro and avoided stocks and other risky assets a day after a meeting of the leaders of Europe’s three biggest economies offered no near-term solutions to a worsening debt crisis.
The euro EURUSD -0.81% fell 0.4% versus the dollar to trade at $1.3267, setting a seven-week low.
French President Nicolas Sarkozy hosted a meeting with German Chancellor Angela Merkel and Italian Prime Minister Mario Monti in Strasbourg, France, on Thursday.
The gathering saw Merkel and Sarkozy agree to circulate proposals for treaty changes aimed at strengthening fiscal ties in the euro area. But investors were disappointed in a lack of more concrete action, strategists said.
Sarkozy said the leaders had agreed to not make demands on the European Central Bank, which was seen as a sign Germany had prevailed in its effort to block calls for the central bank to serve as a lender of last resort. Merkel also poured cold water on proposals for euro bonds, saying common interest rates across the 17-nation shared currency area would send a “wrong signal.”
“The sovereign debt crisis has reached a fork in the road. Either politicians will capitulate to market pressure or they won’t,” said Jane Foley, senior currency strategist at Rabobank. “The market is clamoring for either some form of euro bonds or for the ECB to throw caution to the wind and massively step up its bond buying program.”
Italian 2-, 5- and 10-year government bond yields soared above the 7% level ahead of a closely-watched auction of six-month Treasury bills. The 10-year yield IT:10YR_ITA +7.78% was seen at 7.19% in recent action, up 23 basis points, according to FactSet Research.
Foley said the break below the $1.33 level sets up a potential test of the Oct. 6 low at $1.3240.
The dollar index DXY +0.48% , which measures the U.S. unit against a basket of six major rivals, rose 0.2% to 79.274.
“While treaty changes and greater fiscal integration between euro-zone countries looks likely now; this will require some time for implementation and the lack of real immediate progress from European officials will likely see risk sentiment remain subdued heading into the weekend,” wrote strategists at Lloyds Bank.
A test of the dollar index’s early October high around 80 looks likely, they said.
Trading in U.S. markets is expected to be thin a day after the Thanksgiving Day holiday. The so-called Black Friday kickoff of the U.S. holiday shopping season will be in the spotlight, but anecdotal reports on sales probably won’t be a key driver for global markets, said strategists at KBC Bank in Brussels.
Hungary’s forint currency was under heavy pressure after Moody’s downgraded the country’s credit rating to junk status at Ba1 from Baa3.
The euro EURHUF +0.57% rose 0.7% to trade at 315.76 forint. The dollar USDHUF +1.40% jumped 1% to fetch 237.87 forint.
The British pound GBPUSD -0.11% rose 0.1% versus the dollar to trade at $1.5469. The dollar USDJPY +0.51% rose 0.2% versus the Japanese unit to fetch 77.37 yen.
