26.05.2008 14:50

European focus: dollar holds positions

The dollar held its ground on Monday, taking advantage of the ultra-thin volumes owing to U.S. and UK market holidays to arrest its decline of the last three weeks and eke out slender gains against a basket of major currencies.

"This is only due to the iliquid markets," said Carole Laulhere, currency strategist at Societe Generale in Paris. "The dollar should stay quite vulnerable this week. We still have record oil prices, which is negative for the dollar, and U.S. equity markets are worsening, which is also a concern for the greenback."

However the dollar traded near a one-month low against the euro earlier on speculation U.S. reports tomorrow will show a slump in home prices deepened and consumers were the most pessimistic in at least 15 years.

The U.S. currency fell versus the Canadian dollar and held near a 25-year low against the Australian dollar after oil and gold prices gained, improving the outlook for commodity exporters. Traders pared bets the Federal Reserve will raise interest rates this year, after it cut rates seven times since September while the European Central Bank left rates unchanged.
Currencies in Europe will benefit from record oil prices because of the region's energy efficiency, exports to oil- producing nations and vigilance against inflation, according to Barclays Capital.
The euro, the British pound, the Swiss franc, the Swedish krona and the Norwegian krone should perform ``relatively well'' as oil prices rise, wrote David Woo, global head of foreign exchange strategy in London at the bank, the third-biggest currency trader. The U.S. dollar ranks bottom in terms of potential performance as energy prices climb, it said.
The euro may be supported by speculation the 15 countries that share the currency are strong enough to withstand a slowdown in the U.S., allowing the ECB to keep interest rates on hold to fight inflation. ECB Vice President Lucas Papademos said policy makers are ``strongly committed'' to controlling inflation, the Ta Nea newspaper reported on the weekend.
Consumer prices in the euro region rose 3.5 percent in May, faster than the 3.3 percent gain in the previous month, according to survey. The statistics office will release the figure on May 30. Data one day earlier will probably show unemployment in Germany, Europe's largest economy, declined for the 28th month in May, according to a separate survey.