Currencies: Dollar slips versus euro as equities rise
LONDON (MarketWatch) — The dollar lost ground to the European single currency but gained versus the yen as equity markets moved higher following data that offered further signs of stabilization in the world economy.
The dollar index , a measure of the greenback against a trade-weighted basket of currencies, traded at 80.039, down slightly from around 80.20 in North American trading late Monday afternoon.
The euro traded at $1.4049 versus the dollar, up slightly from around $1.4030 in North American trade.
U.S. stock index futures pointed to a higher open for Wall Street, while European stocks were mostly higher. Read Indications. See Europe Markets.
The dollar and yen have maintained an inverse relationship with risk appetite, tending to lose ground as investors seek assets, such as equities, that are perceived to be more risky. The currencies have tended to gain ground during periods of increased economic and financial turmoil as traders abandon riskier assets.
Risk appetite is likely to remain the key driver in the currency markets in the near term, though light, summer trading volumes could make for choppy price action well into next month, said currency strategists Callum Henderson and Robert Minikin of Standard Chartered Bank, in a research note.
Beyond that, however, “we expect to see renewed and sustained weakness in the U.S. dollar, to the benefit of higher-yielding emerging-market currencies such as the Indonesian rupia, Indian rupee, Brazilian real and Chilean peso,” they said.
A pair of rival purchasing managers’ indexes for China posted gains in June, reflecting expectations among managers that activity expanded in June. See full story.
In Japan, the Bank of Japan’s quarterly tankan survey of business sentiment showed companies were more optimistic about the future for the first time since December 2006. See Economic Report on Bank of Japan tankan.
The CIPS/Markit purchasing managers’ index for the U.K. manufacturing sector showed that purchasing managers saw a further contraction in activity in June, but that the pace of the decline continued to slow. The euro-zone PMI reflected a further steep drop in activity, but also pointed to a further moderation in the pace of the contraction. See full story.
“The low in the economic downturn is behind us. This is not really a point for debate anymore and it was confirmed by the latest manufacturing PMIs [in] Asia and Europe this morning,” wrote strategists at Brown Brothers Harriman.
Caution is required since the surveys have yet to be reflected in core data, they said. But the figures indicate that the euro zone continues to lag, while highly export-oriented economies, such as Sweden and Britain, should outperform the euro zone, they said.
The dollar changed hands at 96.91 yen, up from 96.37 yen in late North American trading Tuesday, and up from 96.23 yen shortly after the tankan data were released.
The tankan showed Japan’s large manufacturers expect the dollar to trade at an average rate of 94.85 yen in the fiscal year through March 2010, weaker than their forecast of 97.18 yen in the March survey.
The headline diffusion index measuring business sentiment improved to minus 48 from a record-low minus 58 in the previous quarterly survey in March. But it was still slightly below the consensus expectation for a rise to minus 43, according to economists surveyed by Nikkei and Dow Jones Newswires.
The British pound slipped to $1.6431 versus the dollar, down 0.2% on the day, and well off the eight-month high versus the greenback scored early in European trade on Tuesday.
Traders will be paying close attention to a range of U.S. economic data on Wednesday, ahead of Thursday’s release of June U.S. labor data, including non-farm payrolls, and the meeting of the European Central Bank’s rate-setting Governing Council in Luxembourg.
Figures on tap for Wednesday include the ADP employment report, the ISM manufacturing index, pending homes sales, construction spending and vehicle sales.
Currencies: Dollar slips versus euro as equities rise
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