Date: 2010-06-24
Dollar on defensive but euro gains limited
LONDON - The dollar struggled on Thursday after the Federal Reserve reiterated its pledge to keep rates low, though its losses against the euro were limited by persistent doubts about the euro zone economy.
The dollar's broad weakness helped sterling to extend gains to a six-week high and underpinned the euro, yet traders remained reluctant to chase those advances with more signs of fragile recovery tempering appetite for risky positions.
"There was a little disappointment in the market from the Fed statement but the euro has struggled to rally. The market remains skeptical about problems in Europe and that feeling won't go away soon," said Antje Praefcke, currency analyst at Commerzbank.
At 0720 GMT, the euro was broadly unchanged on the day at $1.2315 having stalled at $1.2351 in Asia.
Versus a basket of currencies .DXY, the dollar slipped to 85.595 in Asia, bringing it closer to a five-week low hit on Monday of 85.091. It later steadied to trade broadly unchanged at 85.829.
"If the market was hoping for re-assurance from the FOMC they would soon be disappointed as the Federal Reserve signaled that growth was likely to disappoint over the course of the next 12 months, due in no small part from the problems in Europe," said Michael Hewson, currency analyst at CMC Markets.
In a statement at the end of a two-day meeting, the Fed scaled back its assessment of the pace of recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile markets in light of Europe's debt woes.
The dollar was also undermined by data showing sales of new U.S. single-family homes tumbling more than expected in May.
The Aussie dollar rose as high as $0.8771 after Australia's ruling Labor Party elected a new prime minister in Julia Gillard, in a bid to avoid election defeat later this year.
Gillard immediately offered to end a bitter dispute over a controversial "super profits" mining tax, saying she would throw open the door for fresh negotiations. But she stressed miners should pay more tax.
The Aussie later trimmed gains to stand at $0.8725, steady from late U.S. trading on Wednesday.
"We expect new PM Gillard to announce a watered down version of the Resource Super Profits Tax in the coming weeks," said RBC analysts in a note to clients.
"The Australian dollar, resources, and equities will be the likely beneficiaries and should find immediate and longer term support from today's change of PM," they said.
Sterling rose to $1.5001, the highest since May 12, extending gains made the previous day after a hint of an early rise in interest rates in the Bank of England's minutes. The pound subsequently eased to trade with slight losses at $1.4940.
Against the yen, the dollar stood at 89.87 yen, stuck near a one-month low of 89.73 yen hit on Wednesday on trading platform EBS.
"Price action in dollar/yen remains poor and my order board suggests some more weakness to come, with an initial target of 89.10. Option related offers above 90.30 should see us capped," said a London-based spot trader from a U.S. bank.
Dollar on defensive but euro gains limited
LONDON - The dollar struggled on Thursday after the Federal Reserve reiterated its pledge to keep rates low, though its losses against the euro were limited by persistent doubts about the euro zone economy.
The dollar's broad weakness helped sterling to extend gains to a six-week high and underpinned the euro, yet traders remained reluctant to chase those advances with more signs of fragile recovery tempering appetite for risky positions.
"There was a little disappointment in the market from the Fed statement but the euro has struggled to rally. The market remains skeptical about problems in Europe and that feeling won't go away soon," said Antje Praefcke, currency analyst at Commerzbank.
At 0720 GMT, the euro was broadly unchanged on the day at $1.2315 having stalled at $1.2351 in Asia.
Versus a basket of currencies .DXY, the dollar slipped to 85.595 in Asia, bringing it closer to a five-week low hit on Monday of 85.091. It later steadied to trade broadly unchanged at 85.829.
"If the market was hoping for re-assurance from the FOMC they would soon be disappointed as the Federal Reserve signaled that growth was likely to disappoint over the course of the next 12 months, due in no small part from the problems in Europe," said Michael Hewson, currency analyst at CMC Markets.
In a statement at the end of a two-day meeting, the Fed scaled back its assessment of the pace of recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile markets in light of Europe's debt woes.
The dollar was also undermined by data showing sales of new U.S. single-family homes tumbling more than expected in May.
The Aussie dollar rose as high as $0.8771 after Australia's ruling Labor Party elected a new prime minister in Julia Gillard, in a bid to avoid election defeat later this year.
Gillard immediately offered to end a bitter dispute over a controversial "super profits" mining tax, saying she would throw open the door for fresh negotiations. But she stressed miners should pay more tax.
The Aussie later trimmed gains to stand at $0.8725, steady from late U.S. trading on Wednesday.
"We expect new PM Gillard to announce a watered down version of the Resource Super Profits Tax in the coming weeks," said RBC analysts in a note to clients.
"The Australian dollar, resources, and equities will be the likely beneficiaries and should find immediate and longer term support from today's change of PM," they said.
Sterling rose to $1.5001, the highest since May 12, extending gains made the previous day after a hint of an early rise in interest rates in the Bank of England's minutes. The pound subsequently eased to trade with slight losses at $1.4940.
Against the yen, the dollar stood at 89.87 yen, stuck near a one-month low of 89.73 yen hit on Wednesday on trading platform EBS.
"Price action in dollar/yen remains poor and my order board suggests some more weakness to come, with an initial target of 89.10. Option related offers above 90.30 should see us capped," said a London-based spot trader from a U.S. bank.