LONDON, May 10: The dollar was back under pressure against the euro on Tuesday, the eve of data expected to show a further record US trade deficit, analysts said. The single European currency rose to $1.2849 in early European trading from 1.2841 late on Monday in New York.
The dollar stood at 105.71 yen, from 105.62 dollars on Monday. Although we maintain the view that tomorrow’s release of another record trade deficit will do limited damage to dollar sentiment, market participants will take a cautious stance ahead of the numbers, WestLB currency strategist Michael Klawitter said.
The dollar has been buoyed in recent weeks as investors have placed greater importance on developments related to interest rate differentials than structural concerns relating to the twin deficits.
The dollar has been receiving support from last Friday’s data that showed US nonfarm payrolls rising by 274,000 in April, well above market forecasts. Analysts said that the numbers had more or less given the US Federal Reserve the green light to carry on raising its key interest rate in the coming months from its current level of 3.00 per cent.
For months there has been recurrent speculation that China would free up its currency system, allowing the yuan and in turn the other Asian currencies to appreciate against the dollar.
A major revaluation of China’s currency could drastically impact the country’s balance of trade and lead to large outflows of capital that could destabilise the financial system, an official warned Tuesday.
A revaluation of the yuan would result in China’s export growth falling to less than 10 per cent from last year’s 35.4 per cent, said Zhai Zhihong, an official with China’s National Bureau of Statistics.
The euro was changing hands at $1.2849 against 1.2841 late on Monday in New York, 135.77 yen (134.66), 0.6831 pounds (0.6818) and 1.5469 Swiss francs (1.5480).
The dollar stood at 105.71 yen (105.62) and 1.2046 Swiss francs (1.2049). The pound was being traded at $1.8800 (1.8837), 198.73 yen (198.97) and 2.2640 Swiss francs (2.2698).
On the London Bullion Market, the price of an ounce of gold stood at $427.10 against $425.50 late on Monday. —AFP
