Friday, Apr 10, 2009


 
   By Robert Flint and Riva Froymovich 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--In thin holiday trading, the euro extended a week-long decline overnight Friday to more than a three-week low against the dollar.

The common currency has now totally unwound its gains versus the dollar in the wake of the Federal Reserve's mid-March decision to purchase longer-term Treasury notes and bonds. Profit-taking and positioning ahead of the Easter break was behind much of the euro's slide this week.

The dollar had also been supported by a report Thursday that showed the U.S. trade gap shrank to its narrowest deficit in nearly a decade and on a strong first-quarter earnings forecast from Wells Fargo.

The euro's selloff has likely wiped out a number of stops held by traders betting on the common currency, and analysts at Brown Brother Harriman say it will therefore consolidate at the lower end of its current range.

"On the week, the euro is one of the worst performers," BBH said.

Most financial markets in the U.S. and elsewhere were closed for Good Friday, and some outside the U.S. will remain shut Monday. No major economic data is scheduled on either day. Although foreign exchange markets never close, turnover shrinks to a tiny fraction of its normal volume on holidays and weekends.

Friday afternoon, with major currencies barely moving, the euro was at $1.3142, down from $1.3162 late Thursday. The dollar was at Y100.38, off from Y100.45, according to EBS. The euro was at Y131.95, down from Y132.19. The dollar was at CHF1.1579, up slightly from CHF1.1569. Data were unavailable for the U.K. pound due to the holiday.

In overnight Asian trading, the euro had continued to fall against the yen as Japanese exporters sold the euro on a regular settlement day, dragging it lower against the dollar as well. Lower Japanese share prices also hurt the risk-sensitive euro, dealers said.

Thin market conditions magnified the euro's fall because relatively small selling orders exerted a disproportionately big impact, dealers said. Such an environment pushed the euro down to $1.3090 in the Tokyo morning session, its lowest point since March 18.

"It's best not to read too much into the market moves (Friday), since it's mostly position adjustments," said Yuzo Sakai, manager of foreign exchange business promotion at Tokyo Forex & Ueda Harlow. "To discern clear trends we'll have to wait until Tuesday, when more players are back in the market."

Elsewhere, data in China indicated the country's economic stimulus plan is spurring increased demand for certain commodities even as exports and imports continue to drop, suggesting the world's third-largest economy may be near a bottom.

In Chinese foreign exchange markets, a lower-than-expected dollar-yuan central parity rate led the yuan to end higher against the U.S. currency Friday.

The fixing was largely unchanged from the previous day's closing level for the third consecutive session, possibly signaling a change of strategy by the central bank, which typically uses the fixing to guide the market. But dealers said the yuan is unlikely to move out of its long-standing range any time soon.

While the central parity usually takes its broad direction from overnight global currency movements, the determining factor in the last three sessions seems to have been the previous day's closing level.

On the over-the-counter market, the dollar ended at CNY6.8336, down from Thursday's close of CNY6.8347. It traded between CNY6.8332 and CNY6.8353. The dollar-yuan central parity rate was set at CNY6.8347, the same level as Thursday's close, but down from Thursday's fixing of CNY6.8358.

Dealers said they had expected the fixing to be set higher given the dollar's broad strength on international markets overnight. The low fixing led to some dollar-selling interest in the market early in the session, said a Shanghai-based dealer with a foreign bank.

-By Robert Flint and Riva Froymovich, Dow Jones Newswires; 201-938-4408; robert.flint@dowjones.com

(Andrew Monahan in Tokyo and By Denis McMahon in Shanghai contributed to this article).

(END) Dow Jones Newswires

April 10, 2009 13:46 ET (17:46 GMT)