LONDON, Jan 10: The dollar headed back towards seven-week highs against the euro in thin trading on Monday after the single European currency struggled to sustain a recovery above $1.31, dealers said.
The euro stood at $1.3109 compared with $1.3052 late on Friday in New York. The dollar eased to 104.36 yen from 104.76 on Friday. The US currency rallied to a six-week high point against the euro on Friday after a closely watched report on the US labour market confirmed the outlook for higher interest rates, dealers said.
The dollar also moved sharply higher after US Treasury Secretary John Snow said the administration will back its so-called strong dollar policy with sustained action on the budget deficit.
In addition, analysts said the dollar continued to be supported by the relative strength of the US economy, as indicated by a solid US payrolls report for December, compared with the 12-nation eurozone.
Combined, the factors pushed the euro down from the all-time high of $1.3668 it achieved just before the new year to $1.3027 on Friday, its lowest level since November 23.
"Dollar sentiment has gone up but the market remains very much undecided," commented Neil Mackinnon, chief economist at ECU Group. Further dollar support may emerge Tuesday when key German data are to be released.
Mackinnon said neither the ZEW business survey nor industrial production data were expected to be supportive of the euro. The dollar has been in the doldrums in recent months as concerns over the US twin deficits combined with talk that central banks around the world are reviewing the structure of their currency reserves away from the US currency.
There has also been a general feeling that the US administration is following a policy of benign neglect, but Snow's comments on Friday may have signalled a change in tone.
"Maybe there's a slight shift in emphasis here," said Mackinnon. Despite the dollar's four per cent improvement last week however, most analysts expect the US currency to start coming under pressure again this year. On the London Bullion Market, the price of an ounce of gold stood at $420 against $422.20 late on Friday. -AFP
