Profit-taking puts the brakes on dollar
The recent dollar rally ran out of steam on Wednesday as traders took profits following its strong start to the year.
The dollar’s losses were reinforced as a survey showed more jobs than expected were lost in the US private sector last month.
Analysts said this weighed on the dollar, heightening concerns that Friday’s US employment report could make grim reading.
By midday in New York, the dollar had fallen 0.8 per cent to $1.3634 against the euro, lost 0.9 per cent to Y92.79 against the yen and dropped 1.4 per cent to SFr1.0979 against the Swiss franc.
Marc Chandler, at Brown Brothers Harriman, said the economic environment outside of the US remained dreadful, especially in Europe, and this would limit dollar weakness after the release of the US jobs figures.
He said currency traders were then likely to focus on the monetary and fiscal policy responses from different countries when making investment decisions.
“We are of the view that the more aggressive US fiscal and monetary policy responses mean that the US will come out of this predicament first and the dollar will be rewarded accordingly,” said Mr Chandler.
Indeed, the dollar lost ground against the euro Wednesday in spite of data from the eurozone that heightened the chances that the European Central Bank would cut interest rates at its policy meeting next week.
German unemployment recorded its first rise for almost three years in December and producer prices in the eurozone fell at their fastest pace in 27 years in November.
UBS issued a recommendation that clients sell the euro against the dollar.
The bank said recent data suggested growth conditions in the eurozone would remain under considerable stress, while eurozone inflation prospects continued to ease.
“Further decreasing inflation expectations will support the European Central Bank in shifting to a more dovish stance on monetary policy, keeping the single currency in a broad downtrend,” said UBS. “Elsewhere, we expect risk sentiment to deteriorate again, supporting the dollar.”
Sterling endured a volatile session as the prospect of Thursday’s decision on UK interest rates from the Bank of England kept liquidity to a minimum. The pound fell in early trade after Alistair Darling, the UK finance minister, issued a fresh warning over the depth of the UK recession.
The pound recouped its losses later in the session to stand up 1.1 per cent at $1.5092 against the dollar, 0.4 per cent higher at £0.9022 against the euro and 0.2 per cent stronger at Y140.14 against the yen.
