Monday, September 17 09:43:10
The dollar hovered near a seven-month low against a basket of currencies today, and was expected to stay under pressure after the U.S. Federal Reserve embarked on aggressive monetary stimulus last week. Recent dollar weakness has raised speculation the Bank of Japan may in turn consider easing monetary policy at a two-day meeting ending on Wednesday if the yen keeps rising. The euro also held firm against the dollar after hitting a four-month high last week, although some strategists said investors may be tempted to book profits around these levels. "We are due some consolidation. We could trade below $1.30 again but will see $1.35 by year-end. It's a combination of improvements in Europe and deteriorating dollar sentiment," said Daragh Maher, currency strategist at HSBC.
The euro was steady at $1.3115, close to a four-month high of $1.3169 hit on Friday on trading platform EBS. It has risen some 6 percent from a two-year low of $1.2042 hit in July. The dollar index stood at 78.872, having fallen as far as 78.601 on Friday, a level last seen in late February. The Fed said last week it would buy $40 billion a month of mortgage-backed securities until the jobs market improved substantially. The move whetted investor appetite for risky assets, while weighing on the dollar.
The dramatic bounce in the euro also reflected relief after the European Central Bank detailed a plan to help lower high borrowing costs for indebted euro zone countries. Markets are waiting to see if Spain will ask for help to tackle its debt. Some analysts said Madrid appeared to be paving the way for requesting such assistance after it said it would set clear deadlines for structural reforms by month-end. Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong, said the recent rally in perceived riskier currencies could fade if investors turned their focus to worries about the outlook for global economic growth.
"But for now, I think there's no reason to go against this (risk rally) and that means probably more dollar pressure," he said. The euro also hit an eight-month high against the safe-haven Swiss franc of 1.21831 francs on EBS.
The dollar dipped 0.1 percent to 78.32 yen, holding above a seven-month low of 77.13 yen hit on Thursday after the Fed unveiled its monetary stimulus. Investors are focused on how Japanese authorities might respond to the yen's latest rise versus the dollar. Market jitters about the potential for yen-selling intervention by Japanese authorities helped limit the dollar's drop last week. "When we broke down through 78 yen people were beginning to wonder. They (Japanese authorities) last intervened when it was at 76 so I don't really feel we are quite on the cusp of intervention, although the language has been stepped up," said HSBC's Maher.
Japanese Finance Minister Jun Azumi repeated on Friday his warning to markets against pushing up the yen too much, saying authorities would take decisive action if necessary and would not rule out any measures. The Australian dollar dipped 0.1 percent to US$1.0530, off a six-month high of $1.0625 set on Friday. Market players said the currency's strength was likely to be limited by concerns about slowing growth in China, Australia's biggest export market.
"Overall, the Australian dollar is likely to remain strong but it's hard to see it rising above last year's high of $1.10," said Shane Oliver, head of investment strategy at AMP Capital. ( C ) Reuters