Slight Dollar Dip vs. Euro

In early Asian trading the US dollar dipped slightly against the euro but the dollar remains near a three month high against the euro. Stronger US employment figures, the Fed’s positive assessment and higher retail sales data have all combined to boost the dollar in currency markets. Masafumi Yamamoto of Barclays Capital in Japan stated, “The dollar may extend gains a little more as momentum buyers could chase the dollar up while it stays in an uptrend. But gains are likely to slow down, unlike what we saw last week, because many dollar-short positions have already been neutralised by now, and short positions in the euro on the other hand are growing.”

Euro Pressured by EU Banking, Debt Woes

The euro has been pressured by EU banking woes and last week the ECB increased its estimate of euro zone bank writedowns. Euro gains were also capped after ECB Vice President Lucas Papademos said the ECB will not change its plans to tighten collateral rules even if Greek sovereign debt ratings fall below the required A- standard. The euro gained a mere 0.1% against the dollar and traded at $1.4350. Many currency experts are wondering if markets will continue to support the dollar on positive US data or whether optimistic news will prompt investors to sell the dollar in favor of high yielding assets.

Aussie, Kiwi Take Big Hits

Recent big winners, the Aussie and Kiwi dollars fell in global currency markets. The Aussie continued the worst weekly performance among the most traded currencies. The Kiwi hit a one week low but this may be limited due to an expected report that will show that the New Zealand economy grew 0.4% in the third quarter. Khoon Goh of ANZ National Bank Ltd stated, “The markets will now look for any good economic data coming out of the U.S. as potentially signaling earlier Fed rate hikes. The key risk facing the Australian and New Zealand currencies is whether or not the U.S. dollar rally has further to extend.”