Monday, Aug 10, 2009


 
   By Riva Froymovich 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)-- The euro and U.K. pound fell to session lows against the dollar early Monday, as risk aversion made its way into currency markets following a decline in European stocks.

However, the euro is still slightly up against the dollar from late Friday and currencies are within narrow ranges.

The European currencies benefitted from a slight rebound overnight, following a sharp sell-off last Friday, on gains in Asian stocks. But as investors took profits on equities, the euro and pound dipped.

Monday morning, the euro fell as low as $1.4163 and the U.K. pound declined to $1.6583. The euro also sank to session lows against the yen, Y137.57, and Swiss franc, CHF1.5339.

"It seems like we're in a new trend and the market was uncomfortable pushing the euro above $1.4200," said Matthew Strauss, a currency strategist at RBS Capital Markets in Toronto.

Some concerns are also tied to developments in China.

While the U.S. economy is showing signs of healing, investor sentiment is still closely correlated to developments out of China and any possibility that easing measures there will be curtailed.

After sharp growth in the first half of 2009, many fear China's large commercial banks may slow the pace of lending, hindering the pace of recovery.

Monday morning in New York, the euro was at $1.4173 from $1.4169 late Friday. The dollar was at Y97.15 from Y97.48, according to EBS. The euro was at Y137.71 from Y138.20. The pound was at $1.6697 from $1.6671. The dollar was at CHF1.0827 from CHF1.0825.

Last week, the dollar benefitted from an aggressive rally on a stronger-than-expected U.S. payrolls report.

Now, the market is wondering whether the dollar can maintain those gains and if it has really broken its tie to the risk-averse trade.

Strauss and some others remain skeptical.

Last Friday, for the first time since the financial crisis gripped investors, the U.S. unit gained on positive U.S. news. The dollar was bought on interest-rate expectations and economic fundamentals, something that hadn't happened since the world's major central banks began their aggressive easing campaigns.

Usually, as a safe-haven asset and low-yielding currency, the dollar had declined throughout the past two years against riskier, higher-yielding currencies, such as the euro, when spurts of positive data boosted market sentiment - even if it is was positive U.S. data.

"The labor market data's strong effect may have been associated with the widely-held view that the Fed is not going to start tightening policy while the unemployment rate continues to climb," said analyst at Barclays Capital.

That's why Wednesday's Federal Open Market Committee meeting is so important this week, and currencies will likely stay rangebound until the policy statement.

"What would be negative for the U.S. dollar is if Fed officials don't follow up with more hawkish/less dovish commentary," said analysts at UBS.

Also key will be how the dollar responds to U.S. retail sales data Thursday and industrial production and consumer confidence data Friday.

At 10 a.m. EST, the July Conference Board Employment Trends Index will be released. 


 
    Canada Morning

The Canadian dollar is little changed in light, narrow dealings so far Monday.

The currency is expected to continue taking cues from broader shifts in global risk sentiment this week, though with some increasing downside risk in the wake of disappointing Canadian July employment figures from Friday, and amid growing misgivings that Canada's economy may lag the pace of recovery set in the U.S.

In addition, currency strategists at Scotia Capital said Monday that the Canadian currency's recent relative underperformance suggests that "technicals are beginning to tentatively turn bullish" for the U.S. dollar against its Canadian counterpart.

Early Monday, the U.S. dollar was at C$1.0836 from C$1.0830 late Friday.

-By Riva Froymovich, Dow Jones Newswires; 212-416-2217; riva.froymovich@dowjones.com

(Paul Evans in Toronto contributed to this report.)

(END) Dow Jones Newswires

August 10, 2009 09:03 ET (13:03 GMT)