The dollar rose off last week’s 2002 lows against the main European currencies and two-month troughs against the yen on Monday, but remained vulnerable after a recent string of poor data on the US economy.
Dealers said speculators were inclined to lighten their short dollar positions after an aggressive sell-off in the US unit last week, but holidays in the UK and Japan, the first and third largest foreign exchange centres, kept trade subdued.
On Friday, the greenback fell across the board after soggy U.S. jobs data for April and weak earning reports triggered a sell-off on Wall Street and analysts said the trend could resume later this week.
”We have seen lower volatility today due to the holiday in Britain, but there is a good chance that the negative dollar move is transmitted into this week,” said Armin Mekelburg, currency strategist at HypoVereinsbank in Munich.
However, Mekelburg added the pace of the dollar decline may slow with little in the way of fresh U.S. economic data to weigh it down and said a $0.91-$0.9250 range might cover euro moves against the dollar this week.
By 0955 GMT the dollar stood at $0.9150, having hit 6-1/2 month lows of $0.9175 on Friday. It traded half a centime higher against the Swiss franc from Friday’s 2002 low of 1.5857.
The euro was calm after France re-elected President Jacques Chirac in a widely expected landslide victory over far-right, anti-euro candidate Jean-Marie Le Pen.
It was equally unmoved by upbeat euro zone services data, which showed the business activity index at 53.3 in April, the highest for 13 months. A reading above 50 signals an expanding economy while a reading below 50 signals contraction.
Germany’s first major engineering workers’ strike for seven years began on Monday, but also had no immediate impact, with the strike well-flagged beforehand.
The single currency fared better against a weaker Japanese yen, hitting one-month highs near 116.60.
US economic woes
The greenback is now at its lowest levels since October in traded weighted terms having lost more than five percent against the euro and yen since the start of April.
Investors have been punishing the greenback as a series of data out of the United States suggested the world’s biggest economy has failed to meet the market’s high expectations for recovery.
”Sentiment for the dollar is cautious to negative because people aren’t convinced about the sustainability of the recovery given headline-grabbing bad news,” said Sonja Hellemann, currency strategist at Dresdner Kleinwort Wasserstein in Frankfurt.
The U.S. jobless rate rose to a surprise six percent, the highest in more than 7-1/2 years. Performance in Wall Street on Friday was also uninspiring with the Nasdaq falling 1.9 percent.
Concerns about the dollar were also roused after comments by Treasury Secretary Paul O’Neill last week led the market to question the U.S. government’s commitment to the long-standing strong dollar policy.
As a result, speculators sold the dollar against the euro, amassing record net euro/dollar long positions, according to the latest Chicago IMM commitment of traders data.
The dollar has less data to fret over this week with better news expected from U.S. non-farm productivity data for the first quarter due on Tuesday. The market expects productivity to have risen to 6.9 percent in the period.
The market is also focused on the rate decision by the U.S. Federal Reserve on Tuesday. Analysts expect the Fed is in no hurry to raise rates from current 40-year lows of 1.75 percent.
Intervention nerves linger
The dollar gained around half a yen from Friday’s two-month low of 126.81, with dealers nervous about the possibility of intervention from the Bank of Japan to weaken the yen and curb its export-damgaing strength.
”This week’s big unknown factor is the Bank of Japan…they failed to manipulate the (dollar/yen) rate up to 140 and have had to sit and watch the train running in the opposite direction,” said Mekelburg at HypoVereinsbank.
”There’s a high risk of intervention this week because at current levels I don’t see Japan’s neighbours or the US raising objections,” he added. – Reuters