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Jul
FOREX-Dollar edges up; oil down but financial concerns weigh
* Dollar edges up as oil prices fall
* Financial system concerns cap dollar gains
* Euro hits day-low as Trichet notes risks to growth
The dollar inched up on Friday after posting its biggest daily gain against the yen in more than three months the day before when U.S. stocks rallied on a sharp drop in oil prices.
The U.S. currency remained on a shaky footing, however, given concern over the U.S. financial system and bleak growth prospects due to the slumping housing market. Data on Thursday showing a contraction in July factory activity in the U.S. Mid-Atlantic region was the latest evidence of the economic problems there.
The dollar will also underperform against currencies of countries where central banks have a clear stance of fighting inflation, traders said. Market players say the Federal Reserve is unlikely to raise interest rates anytime soon despite its concerns over inflation risks.
“The sharp drop in oil prompted a wave of dollar short-covering, but aside from that, there is very little reason to back up dollar buying,” said a dealer at a European bank.
The dollar surged against the yen on Thursday, rising to a high above 107 yen from a 1-½ month low of 103.77 yen hit on Wednesday.
“The dollar’s rise above 107 yen is apparently an overshoot given worries about the U.S. economy and financial system, so it’s unlikely that players will try to push the dollar much higher,” he said.
The fall in oil prices trimmed Japanese importers’ incentive to buy dollars, traders said, adding that they expect range-trading as Japan heads into a three-day weekend. Japanese markets will be closed on Monday for a national holiday.
Traders were also reluctant to make bets before Citigroup reports its second-quarter results later on Friday, with analysts expecting a loss well in excess of $3 billion.
The dollar was capped around 106.60/70 yen by exporter selling while support was seen around 105.80 yen.
“Players want to be square before big results like Citigroup, which could potentially sway the market. So trading during Asia will be quiet,” a dealer at a Japanese bank said.
The dollar inched up 0.1 percent to 106.35 yen <JPY=>. The dollar index, which tracks its performance against a basket of six major currencies, rose 0.2 percent to 72.175 <.DXY>, off a record low of 70.698 hit in March after Bear Stearns collapsed.
The euro eased 0.2 percent to $1.5832 <EUR=>, near a session low of $1.5822 hit after European Central Bank President Jean-Claude Trichet said in comments published on Friday that euro zone growth is likely to be weak in the second and third quarter before staging a recovery.
Risks to growth were on the downside, Trichet said in a joint interview with four European newspapers. [ID:nL18138509]
“Trichet appears to have become more sympathetic towards the United States, stressing inflation less and putting the growth outlook forward. This makes it more difficult to aggressively chase the euro towards record highs,” the bank dealer said.
The euro hit a record of $1.6040 earlier this week after a U.S. rescue plan was unveiled for troubled mortgage finance giants Fannie Mae <FNM.N> and Freddie Mac <FRE.N>. Concerns over U.S. financial system underpinned the euro on Thursday after Merrill Lynch <MER.N> reported a much larger-than-expected $4.89 billion quarterly loss and unveiled plans to sell assets to shore up capital. [ID:nN17199614]
Oil was around $130 a barrel <CLc1> on Friday after falling more than $5 on Thursday to a six-week low.
Sterling was near a session low around $1.9945 <GBP=D4>, weighed by a Financial Times report on Friday that Britain’s Treasury officials were privately working on plans to reform fiscal rules that may be announced in a pre-budget report.
A Treasury spokesman said the report was “pure speculation” and based on old comments. [nL17632891]
Source: http://www.afxnews.com
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