Euro falls as US dollar extends recovery
London
THE euro edged lower on Wednesday as the US dollar built on its recovery from last week's three-year lows, with higher Treasury yields supporting the greenback ahead of minutes of the Federal Reserve's most recent policy meeting.
The single currency fell 0.2 per cent against the US dollar after trimming some of its losses with the release of a purchasing managers' survey showing that eurozone business growth, while losing some steam, remained robust this month.
The euro, at US$1.2318, is two-and-a-half cents off last Friday high's as investors - sensing that the US dollar had been oversold - bought back into the greenback and offloaded euros.
Against a basket of currencies, the US dollar was up 0.2 per cent to a one-week high. The US currency has gained almost 2 per cent since it touched three-year lows last week, but most strategists believe that the rally is only temporary amid a longer-term structural decline.
The US dollar has fallen this year on the back of strong economic performance in other regions, where monetary policy is expected to tighten, and concerns that the United States is facing a growing budget deficit.
The euro has been driven by US dollar weakness and then the recent recovery, but investors remain long on the currency in anticipation that the European Central Bank will soon begin unwinding its balance sheet.
Analysts at ING said that "any corrective moves" towards US$1.23 would be temporary, with economic activity in the eurozone still booming and supportive for the currency.
The focus now is on US Federal Reserve minutes due late on Wednesday for hints on the future pace of US monetary tightening after worries about rising inflation rattled markets in recent weeks.
"Positioning is a big part of the dollar's recovery, especially in the euro and in sterling. Speculative positioning is skewed to the long side (betting against the US dollar), so it's some profit-taking and a healthy correction," said Stephen Gallo, European Head of FX Strategy at BMO Capital Markets.
"If they do leave the door open to four (rate hikes this year), it's certainly not going to send the dollar much lower. But our view is that the Fed is not having much of a major impact on the dollar anyway," he said. REUTERS
