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Forex Market Update

Jul. 10, 2013 3:47 AM ET
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Forex Market update

US Dollar slips from 3-year high; euro, pound inches higher

United States Dollar: The US dollar retreated Monday with the dollar index falling from a three-year high as investors speculated the greenback has rose too far, too fast after last week's better-than-expected jobs data spurred wagers the Federal Reserve will soon cut back its stimulus.

The US economy added 195,000 jobs in June, the Labor Department said in its monthly report on Friday, beating economists' forecast of a 165,000 rise. The data fueled speculations the Fed will taper its $85 billion a month bond purchases as early as September.

The US currency's fall on Monday came as Treasuries rebounded, with yields sliding from multi-year highs hit on Friday following June's job report. Higher yields on government securities support currencies, making them attractive to investors seeking higher returns.

However, currency strategists believe Treasuries have been oversold, leaving the greenback vulnerable to a pullback. Since the dollar rallied on the back of a sudden rise in volatility, it's likely to give back some of its gains as markets stabilize from the recent turmoil.

Some strategists, nevertheless, believe the US dollar will continue to hit multi-year highs as the bond bubble of a generation bursts.

The ICE-dollar index, a gauge of the US unit's worth against a basket of six major rivals, fell to 84.172 compared to 84.449 late Friday in North America.

The WSJ dollar index, a rival benchmark that measures the greenback against a slightly wider basket, slipped to 75.99 from Friday's close at 76.23.

EURO: The euro rebounded Monday, snapping a three-day losing streak after European Central Bank President Mario Draghi said economic activity in the currency zone should recover over the course of the year and the Eurogroup finance ministers granted a multi-billion euro lifeline to Greece.

Draghi was addressing the European Parliament's Economic and Monetary Affairs Committee.

Analysts however believe the shared-currency is unlikely to make substantial progress against the dollar as Draghi pledged to keep interest rates low for an extended period to support recovery.

The euro rose 0.3 percent to $1.2872 in recent trade, still not far from Friday's seven-week trough of $1.2805.

Meanwhile, economic data from the eurozone remained mixed. Germany's imports rose in May while exports slipped on weak external demand.

Japanese Yen: The Japanese yen rose versus the US dollar Monday with the greenback shedding 0.3 percent after rising in early trade.

The dollar had risen to 101.53 yen earlier, the highest since May 30, but reversed the gains as the day wore on to end at 100.93 yen.

Federal Reserve Chairman Ben Bernanke is scheduled to speak on economic policy tomorrow, the same day the central bank will release the minutes from its June policy meeting.

Analysts believe if the Fed sticks to its September tapering plan, markets are likely to witness a sharp divergence in yields between US interest-rates and euro-zone and Japanese rates, leading to the next round of depreciation in yen and euro against the dollar.

The US dollar had breached the 100-yen mark on Friday following the US June jobs data.

Pound: Snapping a two-day drop against the US currency, sterling rebounded from near the weakest level in almost four months against the US dollar today, after a private report revealed UK business confidence and output both jumped to a multi-period high in June.

The British pound rose to $1.4950 from late Friday's $1.4894 in late afternoon trade, London time.

The domestic economy is likely to experience a period of strong catch-up growth once it gets past the current weakness, Capital Economics said in a report today.

A separate report by BDO LLP revealed the nation's business sentiment gauge rose for a fifth month to 94.3 in June from 93.6 in the previous month, while an index of output advanced to 94.9 from 94.4. Still, both fell short of the 95 mark that separates expansion from contraction.

Analysts however, expect the pound to sustain losses, given the divergence in policy stance between the US Fed and the Bank of England. The arrival of Mark Carney could trigger more stimuli to boost growth, the Capital Economics report observed.

Canadian Dollar: The Canadian dollar edged higher against its US counterpart Monday after a report showed surprise strength in the nation's housing sector.

The value of municipal building permits rose 4.5 percent in May to C$7.3 billion, following a revised 11.2 percent jump in April, Statistics Canada said in Ottawa today. The rise in May came mainly from the non-residential sector in Quebec and the residential sector in Ontario, the report reveled. Economists had projected a drop of about 10 percent.

The loonie, as the Canadian dollar is popularly known, ended its North American session 0.2 percent higher at C$1.0558. It had earlier dropped to C$1.0609, the lowest since early October 2011.

The currency however, slipped in its trading results against most of its major trading partners after a survey by the Bank of Canada showed business optimism about sales and investment weakened in the second quarter. The survey of 100 firms showed business executives are keeping hiring plans modest and holding back on investments due to lack of domestic growth.

Crude oil, Canada's largest export, slipped Monday with crude futures falling 0.2 percent to $102.97 per barrel on the New York Mercantile Exchange.

Australian Dollar: The Australian dollar rebounded from its near three-year lows against the greenback amid speculation the antipodean currency may have fallen too fast.

The Aussie, as the Australian dollar is popularly known, traded at 91.28 US cents compared with 90.65 US cents late Friday.

The Aussie dollar managed to hold on to its biggest gain in a week against the greenback ahead of a survey of Australian business confidence today.

Analysts however predict weakness for the currency and expect the Reserve Bank of Australia to cut interest rates as early as next month.

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