Euro near new highs on corporate hedging

The euro is back up near its lifetime highs against the dollar in early London trading as corporate interests appear to be hedging…

The euro is back up near its lifetime highs against the dollar in early London trading as corporate interests appear to be hedging their dollar exposures, analysts said.

Strong US economic data yesterday afternoon failed to reverse the trend, with the euro creeping back up to its record of $1.2436 reached yesterday. With little on tap today, so-called positioning flows will be the order of the day, they said.

"The dollar remains under serious pressure. The retracements are pretty small and short-lived," said Mr Mark Austin, currency strategist at HSBC.

Just as was the case last year, it appears that corporate treasuries and "real money" interests, such as mutual funds and insurance company investors, are approaching the end of the year with dollar holdings that are larger than desired.

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Mr Austin explained that when a trend has been in place for a protracted period, it is often the case that as the calendar year concludes, investors find they need to hedge or reduce exposure to a currency that has been falling.

Particularly as daily trading volumes drop due to the holiday season, these sorts of positioning flows tend to dominate price activity, analysts say.

Certainly the fundamental news over the past 24 hours appear dollar-supportive, strategists said.

The dollar failed to respond however, and the US currency is now also trading near a fresh 11-year low against sterling, with the pound trading above $1.77.