The US dollar made sturdy gains on Friday, boun-cing back during New York trading in a technically driven move that drove the US currency to match a 25-month high versus the yen.
The dollar rebound ended 36 hours of steady losses versus the euro, at one point pushing the single currency down almost US$01.5 from its session high. It took the euro back below the key US$1.20 level that it has traded around for months.
It also took the dollar up to ¥115.98, the same 25-month high the US currency tapped on Wednesday. The dollar stayed around that level throughout the New York afternoon but was unable to extend its gains because of Japanese exporters buying yen and investors protecting options barriers, traders said.
Traders said there was no single event driving the move, with no major US data out on Friday. Market conditions seemed to be leaning against the dollar, with US equities falling back and the yield on US Treasuries coming under pressure.
However, with the interest-rate spread between the US, Japan and euro zone continuing to move in the dollar's favor in recent days, many investors continue to see the dollar as an attractive near-term bet.
"It is still all about the decisions taken at the FOMC [Federal Open Market Committee] and the guidance provided by Fed members, and what remains quite clear on the back of the strong economic performance in the US is that the direction of the federal funds rate is headed higher," said Timothy Mazanec, currency analyst at Investors Bank & Trust in Boston, in an e-mail note.
In late New York trading, the euro was at $1.1949, down US$01.2 from its overnight high and lower than US$1.2015 late on Thursday. The dollar was at ¥115.91, up from ¥115.38.
Grant Wilson, senior foreign-exchange trader at Mellon Bank in Pittsburgh, said the greenback's rebound during the New York morning gained momentum when traders triggered stop-losses as they pushed the US currency above ?115.65. That set off broad dollar gains, which in turn triggered stop-losses on the euro around US$1.20 and set off a fresh round of dollar gains
Wilson said the key test for the dollar will be whether it can break cleanly through ?116 or whether this level will prove a ceiling for the US currency.
Despite the underpinning for dollar strength from interest-rate differentials, Adrian Foster, head of foreign exchange strategy at Dresdner Kleinwort Wasserstein in London, said Friday's dollar rally was largely a technical move in a choppy market.
"We are seeing pretty low levels of commitment in trading positions, and people are going with the flow," Foster said.
That means that while there have been some abrupt movements, the dollar has remained in a fairly tight range this week, with the euro trading mainly between US$1.19 and US$1.21.
Analysts say the euro is getting some support from the stepped-up rhetoric of European Central Bank (ECB) officials about inflation pressures.
On Friday, ECB Chief Economist Otmar Issing reiterated the bank's willingness to adjust interest rates if necessary. Also, ECB President Jean-Claude Trichet said that while interest rates are appropriate, inflation pressures are building.
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