Tuesday, Jun 23, 2009


 
   By Paul Evans 
   OF DOW JONES NEWSWIRES

TORONTO (Dow Jones)--The dollar ended sharply lower after global risk sentiment turned positive again Tuesday, sending the U.S. currency to a succession of multi-week lows against currencies such as the euro, yen and Swiss franc.

The dollar's fall emerged out of a greater appetite for risk following a more risk averse climate Monday.

Investors and market players have been prone to erratic mood swings recently, and their relatively sunnier dispositions Tuesday were reflected in higher crude oil prices and U.S. equity prices that wavered narrowly between positive and negative territory throughout the day.

The healthier risk environment was also supported by more encouraging economic data from the U.S. and elsewhere.

U.S. existing-home sales rose in May for a second month in a row, and the Federal Reserve Bank of Richmond indicated an improvement in the manufacturing sector.

In the euro zone, the latest German consumer confidence and euro-zone purchasing managers' surveys were taken as evidence that the worst of the downturn has passed, supporting risk appetite out of the safe-haven dollar.

Comments from European Central Bank officials have also been helpful for the euro, as ECB Governing Council member Guy Quaden said the euro zone's economy will be "less bad" for the rest of the year before improving progressively in 2010, and fellow ECB council member Axel Weber said the central bank has done enough in terms of easing.

Also Tuesday, Standard & Poor's said it doesn't expect that any high-grade, euro-zone sovereign borrowers will need to be bailed out due to the effects of the global economic crisis.

Although these developments helped global risk appetites to recover, the magnitude of dollar losses versus the euro and some other currencies was somewhat disproportional Tuesday, testifying to the still volatile and jittery tone in currency markets in the absence of a firmer and more durable directional trend.

The dollar sold off sharply early and then extended its losses as European traders began exiting around midday, in the process sending the dollar to its lowest level in over a week against the euro, and to three-week lows versus the yen and the Swiss franc before a modest recovery toward the end of Tuesday's session.

Late Tuesday, the euro was at $1.4081 from an intraday high at $1.4109 and from $1.3865 late Monday, and was at Y134.11 from Y133.12. The dollar was at Y95.24 from Y95.99, according to EBS. U.K. pound sterling rose to $1.6460 from $1.6349, while the dollar was at CHF1.0666 from CHF1.0862.

Tuesday's moves still leave the dollar in the midst of a sideways pattern against most currencies, as traders settle in to await Wednesday's U.S. Federal Reserve policy announcement.

"I think these are more short-term, technically driven moves than anything," said currency strategist Shane Enright of CIBC World Markets in Toronto. "The market is still searching for short-term direction on the U.S. dollar and everything else is responding accordingly."

Some of the dollar selling also reflected technical and position-squaring requirements ahead of the Fed's policy statement, as the Federal Open Market Committee isn't expected to include anything overtly dollar-supportive.

Currency strategist Jacqui Douglas of TD Securities noted that while the dollar rallied following the last Fed policy statement in late April when the central bank defied expectations that it would increase the amount of its Treasury purchases, a similar rally doesn't seem plausible this time around.

"Market expectations seem to be much more muted this time around with respect to further measures from the Fed," she said. "Therefore we don't see much opportunity for disappointment, and tomorrow's FOMC meeting could be one of those 'non-event' type of announcements that we haven't seen in some time, with little currency market reaction to the FOMC statement itself."

-By Paul Evans; Dow Jones Newswires; (416) 306-2022; paulr.evans@dowjones.com

(Riva Froymovich in New York contributed to this report)

(END) Dow Jones Newswires

June 23, 2009 16:30 ET (20:30 GMT)