The U.S. dollar index climbed Monday as the euro gave back earlier gains against the greenback, with the two currencies advancing versus the Japanese yen as tensions between Japan and China over disputed islands showed signs of worsening.
The moves early Monday in the euro and yen “were too wide, and opened the way for reversals,” said Richard Hastings, a macro strategist at Global Hunter Securities.
That, along with some concerns about global trade and earnings strength in the fourth quarter of 2012 and first quarter of 2013 are “taking some risk out of the market and back into safety, which always boosts the demand for dollars,” he said.
Protesters march in China
Protesters marched Sunday in southern China as a dispute between China and Japan has flared recently over a series of tiny islands between the two countries.
The ICE dollar index DXY +0.23% , which measures the U.S. unit against a basket of six major currencies, rose to 79.045 from 78.864 late Friday. It had moved to as low as 78.719 during the session.
The euro EURUSD -0.15% fetched $1.3094, down from $1.3121 late Friday. It traded as low as $1.3082 and as high as $1.3171.
The euro EURJPY +0.31% , meanwhile, rallied against the yen, buying ¥103.07, down from a session high of ¥103.84 and versus ¥102.85 late Friday. Japanese equities markets were closed Monday for a public holiday.
Also against the yen, the U.S. dollar USDJPY +0.50% bought ¥78.74, up from ¥78.39 late Friday.
Analysts said the dispute between China and Japan over islets in the East China Sea — along with other geopolitical concerns, including Iran-Israel tensions and antiausterity protests in Portugal — had the potential to check investors’s appetite for risk in the near term.
“If there are doubts about Japan’s economy because of repercussions from the disputes with China, then we are seeing this already in yen selling into the euro, and yen selling into dollars,” said Hastings.
Some Japanese companies have shut down operations in mainland China, according to news reports.
“As one of Japan’s largest trading partners, any slowdown in trade between the two nations will hurt the Japanese economy,” said Christopher Vecchio, currency analyst at DailyFX.
“We’re also hearing chatter of an increased likelihood of an intervention to weaken the yen, due to the Chinese tensions (which would allow Japanese exporters to gain a slight competitive edge) and the Federal Reserve’s new unlimited [quantitative easing] program, which will keep some soft downside pressure on the U.S. dollar (and thus the USDJPY) going forward,” he said in emailed comments.
Also contributing to the Japanese currency’s weakness Monday was a widening in the spread between 2- and 10-year U.S. Treasury yields, which implies that Treasury yields are “supportive of the U.S. dollar. This, in turn, keeps the bid under the U.S. dollar as opposed to the yen as the main safe haven investors are looking toward,” said Vecchio.
The Bank of Japan will also hold its latest monetary policy meeting on Tuesday and Wednesday of this week.
Fed’s impact
Moves in the dollar and euro follow the Fed’s decision on Thursday to launch a third round of bond purchases in a bid to underpin the U.S. economic recovery. Additional stimulus, particularly quantitative easing, is seen as potentially negative for the greenback, which touched its lowest level since May on Friday.
“The quick appreciation of the euro is due to the extremely dovish Fed,” said Wojtek Zarzycki, chief investment officer of Optimal Investing. “Some kind of easing was priced into the markets but very few believed that we would see ‘QE infinity’ as it is now dubbed.”
QE infinity, together with the Europe Central Bank laying out its bond-buying plans and the German court deciding in favor of the creation of the European Stability Mechanism, has provided support for the euro, said Zarzycki.
“The main question is: Is all the good news priced in? We will see some answers when Spain auctions off bonds this week and as Spain formally asks for a bailout and the details of this framework,” he said.
Among other currencies to begin the trading week, the Indian rupee USDINR -0.7734% climbed, tracking gains in the nation’s stock market, with the U.S. dollar buying 53.90 Indian rupees, down from 54.30 rupees Friday.
The Reserve Bank of India on Monday cut its cash reserve ratio by 25 basis points to 4.5%, effective Sept. 22. It also kept its policy repo rate unchanged at 8%.
The Australian dollar AUDUSD -0.82% traded at $1.0459, down from $1.0554 in late trading last week.
The British pound GBPUSD +0.10% traded at $1.6238, from $1.6229.
0 comments:
Post a Comment