Euro takes advantage as dollar plumbs fresh 17-month low
The dollar yesterday slid to a fresh 17-month low against the euro, dragged lower by an early fall in US equities. At its peak, the euro reached $0.9526, breaking through resistance at $0.951. But the currency quickly surrendered its gains as stocks in the US regained their footing.
Analysts said there had also been some liquidation of long euro positions. "Many traders have seen their short-term objectives with the euro met and have been unwinding some positions," said Mr Marc Chandler, chief currency strategist at HSBC in New York. By the middle of New York trading, the euro was hovering around $0.946.
Mr Kamal Sharma, currency strategist at Commerzbank, said events had conspired yesterday to work against the dollar with a terrorist attack in Karachi, "awful" economic data and weak stock markets all weighing on dollar sentiment.
Market participants remain sceptical about the dollar's near-term prospects and some said they would not be surprised if the Bank of Japan intervened in the market on Monday morning to prevent the yen appreciating too much more.
The efforts of the Japanese authorities to forestall a rise in the currency are being assisted by a renewed appreciation of the problems facing its economy.
US economic data released yesterday did little to ease investors' concerns. "There's a lot more question marks about the pace of the recovery, confidence is low," said Mr Russell Jones, global head of foreign exchange research at US investment bank Lehman Brothers.
The political swing of Europe towards the centre right has been a peripheral issue for the market in recent weeks. The final round of parliamentary elections in France promises to bring the issue more into focus, said Mr Mark Cliffe, chief economist at ING in London. "The French election and later the German election should mean the centre-right parties have had a clean sweep over the past few years," he said. The consequences, he said, were likely to be slightly looser fiscal policy as governments cut taxes and a marginally greater willingness to engage in structural reform.