Friday, Nov 20, 2009
By Bradley Davis
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar advanced against the euro and most other rivals Friday as U.S. stocks stayed in the red and investors shied from taking new positions ahead of the shortened U.S. Thanksgiving holiday week.
Currencies remained trapped within recent trading ranges, with decreased tolerance for risk knocking the euro lower for the second straight day. Other asset classes failed to provide a clear direction, with gold attaining another record high and other commodities up, but oil and stocks down.
"Markets haven't put their finger on it yet," said Camilla Sutton, currency strategist at Scotia Capital in Toronto, of the divergent price action. "We're outside of the crisis," but investors are still unsure of when the global economic recovery will fully take hold.
Late afternoon, the euro was at $1.4851 from $1.4925 late Thursday, according to EBS via CQG. The dollar was little changed at Y89.00 from Y89.03, while the euro was at Y132.26 from Y132.85. The U.K. pound was at $1.6491 from $1.6658. The dollar was at CHF1.0183 from CHF1.0129.
The Dollar Index, which tracks the greenback against a trade-weighted basket of six currencies, was at 75.647 from 75.264.
The euro took back some of its overnight losses when traders began squaring positions during the North American session. After sliding as far as $1.4800 in European trading, the common currency staged a partial recovery in midmorning trading in New York.
To see the euro's moves against the dollar over the past two days, please see:
http://dowjoneswebservices.com/chart/view/3074
European Central Bank President Jean-Claude Trichet had said Friday it was "too early to say" that the crisis is over, but added that banks should brace themselves for a "timely," though gradual, reduction of support from the ECB, in particular with respect to the generous refinancing help they have received.
Later in the session, the ECB announced its first active step to unwind the measures it has used to support the financial sector since the global crisis last year. The bank said it will tighten the standards according to which it accepts certain asset-backed securities as collateral for its refinancing tenders.
Plentiful access to liquidity has been seen as one of the reasons riskier assets have rallied. Any suggestion such programs will end is generally viewed as a negative for growth-sensitive stocks and commodities as well as higher-yielding currencies such as the euro.
Currency markets had already priced in the piecemeal removal of emergency liquidity-providing measures, Sutton said. So the ECB's announcement was not a surprise to traders.
"Removing some of those emergency actions aren't necessarily representative of what's going on the traditional monetary-policy front," Sutton said.
Monetary policy that drives currency markets, and it is that policy that is likely on hold in major central banks for at least nine months, Sutton said.
Until central banks offer clues as to when interest rates might change, bit-by-bit releases of global economic data are likely to drive currency markets, analysts said.
"Economic data will still be key going forward, but we will need to see some very nice numbers to push through $1.50 in the next couple of weeks," said Jane Foley, a research director at Forex.com in London.
Investors began Asian trading Friday on a negative tone after the Japanese government declared that the economy has fallen into deflation due to weak domestic demand. The government also cautioned that continuous price declines could spell trouble for the economy's nascent recovery.
"The fact that there seems to be some concerns about financial stresses in parts of the world is a reminder that we're still not out of the woods and there's still potential for lots of difficulties going forward even if we are on the road to recovery," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.
"In that sense, it's not clear that the equities markets, and indeed some of the other markets, are appropriately priced for the kind of environment that we find ourselves in," he said.
(Fabio Alves in New York and Geoffrey T. Smith in Frankfurt contributed to this article.)
-By Bradley Davis, Dow Jones Newswires; 212-416-2654;
bradley.davis@dowjones.com
(END) Dow Jones Newswires
November 20, 2009 16:21 ET (21:21 GMT)