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Euro recovers ground lost to US dollar

"The euro is trying to bounce back, pretty much across the board. We've broken through the top of the range over the past week on euro [to] dollar."

Ian Stannard, currency strategist at BNP Paribas

The euro enjoyed sharp gains at the end of the London trading session Friday, as market participants seemed to want to sell dollars ahead of the long holiday weekend in the US, analysts said.

The single European currency rose to US$1.0996 from US$1.0880 late on Thursday in New York.

The dollar climbed to ¥117.69 from ¥117.29 on Thursday.

"The euro is trying to bounce back, pretty much across the board. We've broken through the top of the range over the past week on euro [to] dollar," said Ian Stannard, currency strategist at BNP Paribas.

The move comes in the wake of further positive news on the US manufacturing sector, with the Chicago purchasing manager index indicating a faster pace of expansion in regional activity this month.

Therefore the euro's move is likely to be a positioning phenomenon, rather than any sort of fundamental shift, said Steve Pearson, chief currency strategist at HBOS.

"At this point it's a benign retracement for the dollar," Pearson said.

If the euro rises one or two more cents against the dollar, questions will be raised as to whether the dollar's recent bout of strength is over, he added.

The downward momentum on euro/dollar had slowed in recent days, and dealers most likely decided to pull out of long dollar positions before the long weekend, Stannard concluded. US markets are closed tomorrow for the Labor Day holiday.

Earlier, the yen surged after news that Japanese authorities had not intervened to stem the yen's rise over the past month. The finance ministry confirmed that no intervention occurred in the month to Wednesday.

Dollar-to-yen sank to approach ¥116.20, where support kicked in.

Federal Reserve chairman Alan Greenspan's speech to the Jackson Hole, Wyoming economic conference had little market impact, as he failed to make reference to current US economic conditions.

Strategists said next week will be crucial for the direction of currencies in coming weeks, as investors come back from their holidays and trading desks returned to fully staffed levels.

Real-money investors could decide that the latest sell-off in the dollar, set against the continued improvement in US economic indicators, leaves it at an attractive level for accumulation, HBOS's Pearson said.

The start of the week will produce the key purchasing manager indexes for manufacturing in the US and Europe. If the US manufacturing sector continues to show improvement, this would also help the dollar story, Stannard said.

However, the US labor market remains a key sore point, and the August jobs report will be a major risk next Friday.

The euro was changing hands at US$1.0996 from US$1.0880 late on Thursday in New York, ¥128.22 (¥127.66), £0.6966 (£0.6893) and 1.5382 Swiss francs (Sf1.5389).

The dollar was being quoted at ¥116.69 (¥117.29) and Sf1.4001 Swiss francs (1.4139).

The pound was at US$1.5779 (US$1.5777), ¥184.09 (¥185.04) and 2.2083 Swiss francs (Sf2.2311).

On the London Bullion Market, the price of an ounce of gold stood at US$375.60 against US$369.80 on Thursday afternoon.
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