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The European single currency briefly recovered versus the dollar on Friday.
Written by article default Friday, 21 May 2010 09:02
Market OverviewThe dollar and the euro ticked up against the yen in Asia Monday as short-term players in the region reacted to gains in Chinese share markets by selling the safe-haven yen in favor of the two riskier currencies.
In the early Asian session, investors sold the dollar and the euro after the Wall Street Journal said the U.S.' financial-overhaul bill, passed last week, brings big banks closer to what could be major credit-ratings downgrades. Such downgrades would sock banks with billions of dollars in additional financing costs.
But later, the euro and the dollar recouped losses as gains in Chinese stock prices restored investor confidence. When share markets pick up, risk appetite improves and players often sell the yen, considered a safe haven. The Shanghai Composite Index was up 3.14% around midday.
As of 0450 GMT, the euro stood at YEN113.00 after falling as low as YEN112.08 in the Asian morning. The dollar was at YEN90.22 from its day's low of YEN89.74. The single unit changed hands at YEN112.80 and the dollar was at YEN89.64 late Friday in New York.
Meanwhile, the euro declined against the dollar, trading at USD1.2520 from USD1.2583 late Friday.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 85.734 from 85.348.
Sterling fell against the US dollar, reversing earlier gains as investors remain risk averse. The sterling has lost 0.2% against the US dollar and is currently trading within the range of the last four trading sessions.
The Australian dollar dipped slightly in Asia trade Monday, although investors said they were relieved that last week's roller coaster ride didn't continue for at least one day.
Market expectation
The yen could extend losses against the two currencies as investors are likely to sell the unit to lock in profits this week amid an absence of fresh economic data that would strengthen doubts about European and global economic fragility, dealers said.
USDYEN, EURYEN off lows as gains in China stocks restore Asian short-term players' confidence, denting demand for safe-haven YEN say dealers. Shanghai Composite Index last up 3.0%. Says USDJPY's upside likely short-lived as Japan exporters expected to sell pair around 90.50. Meanwhile, EURYEN could gain toward JPY113.50 as speculators will likely cover substantial amount of EUR shorts.
Market participants will continue to monitor any signs of the Chinese yuan's appreciation after the two-day U.S.-China Strategic and Economic Dialogue, which started Monday. If expectations grow that China is likely to revalue the yuan, to the detriment of the Chinese economy the engine of global growth investors could flee to the safe-haven yen, dealers said.
Sterling is likely to consolidate in ranges against the euro and dollar for now. Its support comes from improved risk sentiment, yet remains capped by concerns about protracted slow U.K. growth as the new coalition seeks to cut budget deficit.