NEW YORK, March 15: Investors favored the dollar over European currencies on Friday as delays in diplomatic maneuvering on Iraq signaled the United States and Britain were working hard to avoid an attack without UN approval.
The dollar has been buffeted by changing diplomatic winds, at one moment blown toward a non-UN sanctioned war, a negative for the dollar, and just as quickly toward 11th-hour efforts aimed at gaining UN approval of an attack, a positive for the dollar.
A flood of US economic data on Friday turned out to be largely in line with market expectations, analysts said.
But geopolitics drowned out the data as investors prepared their positions ahead of Sunday’s emergency summit of the United States, Britain and Spain in Portugal’s Azores islands.
People are thinking ‘What’s the next development to bash the dollar lower?’ and they are running out of ideas. So there’s a broad-based scramble to cover those short dollar positions and we probably haven’t seen the last of it, said Sean Callow, currency strategist at IDEAGlobal in New York.
Traders will mark time to see which way the geopolitical developments turn. Any news that spurs hope of avoiding war or a rapid end to one will support the dollar. Conversely, an increase in the possibility of war without UN approval hurts the dollar, Callow said.
As Wall Street pared earlier gains, the euro rose from session lows to stand near $1.0745 in late trading, nearly 0.50 per cent lower than Thursday’s New York close and half a unit from a two-week low at $1.0693 reached in the session.
Against the Swiss franc, the dollar climbed to 1.3651 francs, a gain of 0.47 per cent on the day, while sterling tumbled 1.12 per cent against the dollar to $1.5824.
The dollar rose to a near three-week high against the yen at 118.75 before slipping back to 118.30 yen, a loss of 0.28 per cent on the day.
On Thursday, investors positioned heavily against the dollar were forced to buy it back quickly as hopes of a rapid resolution to the Iraq crisis reached full boil. However, traders said there is still a lot of support for the anti-dollar argument, putting a cap on the greenback’s rise.
In the last 48 hours there has been a lot of euro selling, but that is more a position adjustment than a fundamental change in the world. There is going to be support for the euro by people who did not buy it near parity, said John Hazelton, director of foreign exchange at PNC Bank in Pittsburgh.
The United States and Britain have not convinced enough nations to vote in favor of a resolution authorizing war against Iraq for not ridding itself of weapons of mass destruction. A vote expected Friday was pushed back until at least next week.—Reuters