NEW YORK, June 25: The dollar slipped from multi-month highs against major European currencies on Friday in largely technical pre-weekend trading, dealers said. The dollar had risen earlier to 10-month highs against the Swiss franc and the euro, with the euro briefly falling below the psychological and options-related $1.20 support level.
There was a failure to break the $1.1980 level (on the euro/dollar) going into the weekend, said Craig Russell, senior dealer at Alaron FX in Chicago. When the day trading community saw that level defended and held they went back to old positions, he added.
The euro also rebounded against the yen, popping back up 0.6 per cent to 131.94 yen.
The yen was rattled as oil prices rose to touch $60 a barrel for a second day on Friday, extending a streak of record highs. Higher oil prices typically hurt the yen, as Japan imports all of its energy needs.
Euro/yen’s recovery lifted the dollar 0.1 per cent to 109 yen, although the greenback was down at 1.2735 Swiss francs.
Sterling was up 0.5 per cent at $1.8243.
News of a 5.5 per cent surge in US durable goods orders in May failed to give the dollar much support because the headline figure was massively inflated by aircraft orders. Demand for non-defense capital goods excluding aircraft fell 2.3 per cent.
In fact, the dollar hit session lows against the euro and other currencies after the U.S. Commerce Department release.
Traders and analysts took the 2.3 per cent fall in non-defense capital goods orders excluding aircraft as a sign that US industry is not firing on all cylinders, strategists and traders said.
We’re in a bit of a soft spot in industry, said Jason Bonanca, director of foreign exchange strategy at CSFB in New York. “(But) it doesn’t change anything (for the dollar). This is not new news that makes us reconsider the path of US monetary policy or the dollar’s response to it.
The Federal Reserve remains on a rate-tightening path and is expected to raise rates by a quarter percentage point to 3.25 percent next week, the ninth such increase in a year.
With a quarter-point hike fully priced in, attention will shift to the text of the Fed’s habitual accompanying statement for clues to the likely direction of monetary policy.
The euro has come under heavy selling pressure in recent weeks as a lack of confidence in the euro zone’s economy and broader European politics pervades the currency market.
The risk is growing of euro zone rates, currently at 2.0 per cent, going lower, traders say, after an aggressive rate cut in Sweden and dovish Bank of England minutes this week.
European Central Bank policy-makers have tried to resist mounting pressure from Europe’s politicians to cut rates to boost the region’s sluggish economy, insisting that ultra-low borrowing costs by historical standards are appropriate.
In response to questions in Mannheim, Germany on how the ECB will respond to this pressure, ECB President Jean-Claude Trichet said on Friday: We have our mandate. It is absolutely clear and because the entire world is absolutely clear (that) we will fulfill our (price stability) mandate, we have the lowest rates in 100 years.
The ECB targets inflation below or close to 2 per cent. —Reuters