Dollar down, risk demand rises on earnings view

LONDON - The dollar fell on Wednesday, hitting its weakest against a basket of currencies in nearly two weeks as currencies seen as higher risk benefited from upbeat earnings from Goldman Sachs and Intel the previous day.

By (Reuters)

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Published: Wed 15 Jul 2009, 4:43 PM

Last updated: Thu 2 Apr 2015, 8:30 AM

The yen also struggled while the euro gained, boosted by higher European shares. The euro brushed off a 0.1 percent annual fall in euro zone inflation, which confirmed that price risks in the region are nil at the moment.

Analysts said risk appetite was rising on speculation other U.S. firms may post solid second-quarter performance after reports from the two U.S. powerhouse firms exceeded forecasts.

“The market may be expecting more pleasant surprises rather than unpleasant surprises from earnings,” said Steve Barrow, head of G10 currency research at Standard Bank in London.

JPMorgan Chase & Co will announce its results on Thursday, followed by Bank of America Corp and Citigroup Inc on Friday.

By 0951 GMT, the euro traded 0.6 percent higher at $1.4060, near the day’s high around $1.4070. This helped to push the dollar index down more than 0.6 percent to 79.559, its lowest since the start of the month.

Euro/dollar implied volatility fell, with one-month vol decreasing to around 11.0 percent according to Reuters data, its lowest since Lehman Brothers collapsed last autumn.

Lower volatility was partly seen as a reflection of the pair’s inability to significantly break out of the $1.38-$1.42 range in which it has been stuck since mid-May.

Still, Barrow at Standard Bank said that vol was unlikely to fall further, given that liquidity, while improving, remained nowhere near levels seen before the financial crisis escalated last year. This may help to limit demand for carry trades, which tend to pick up in low-volatility conditions, he added.

The Australian currency rose 0.6 percent to 0.7988, while the New Zealand dollar rose a third of a percent.

The euro rose 0.7 percent to 131.60 yen as the yen slipped across the board, continuing to relinquish gains seen last week. Sterling and the Australian dollar each rose roughly half percent against the yen.

The yen displayed little reaction to the Bank of Japan’s widely expected move to extend special corporate finance-support measures by three months, although some analysts were surprised that the extension was not longer.

Antje Praefke, currency strategist at Commerzbank in Frankfurt, said there was a risk that euro bond redemptions may limit gains in euro pairs, including euro/yen, in the near term.

Roughly 60 billion euros of bond redemptions and coupon payments are scheduled this week of which around 36 billion euros are due on Wednesday.

“If funds from those redemptions go back into euro assets, it won’t be an issue, but if for example some of it goes back to Japan, euro/yen may fall,” she said. Focus was also on China’s currency reserves, which ballooned to a higher-than-expected $2.13 trillion last month.

Some analysts said China’s massive reserves pile — by far the biggest in the world — may raise pressure on China to allow the yuan to appreciate against the dollar, while also keeping the issue of reserves diversification on the front burner.

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