Yen Weaken vs Euro on High Oil Prices
The dollar and yen retreated against the euro on Monday on concerns that record high oil prices could threaten global growth, with the euro zone currency also garnering support from improving German business confidence.
U.S. crude futures for August delivery neared $61 on buying by speculative funds in the wake of prospects of stronger U.S. and global demand in the fourth quarter.
"Oil prices have partly driven the market today, so that's why we've seen a weaker dollar," said Richard Franulovich, senior currency strategist at WestPac Banking Corp. in New York.
"There's no set correlation between the dollar and oil prices. But I remember a long period from 1999-2000 when oil prices were going up and this was positive for the dollar. Now, I think, high oil prices are seemingly negative for the dollar," he added.
Late in the New York session, the euro was up 0.5 percent against the dollar at $1.2161 and gained 0.7 percent versus the yen to 132.91 yen.
The euro also got a boost in the European session after word that German business confidence rose in June, as expected, for the first month in five as companies grew more optimistic about both current activity and the future.
The dollar fell 0.5 percent against the Swiss franc to 1.2682 francs. Sterling, meanwhile, rose to $1.8285.
The dollar rose 0.2 percent against the yen to 109.29, within range of an 8-month high. Bank of Japan Governor Toshihiko Fukui told reporters in Basel that high energy prices are a source for concern for Japan's oil-reliant economy.
In addition, the yen was also hurt against the dollar after China said it would not be browbeaten into revaluing its yuan currency peg.
Chinese Premier Wen Jiabao told Asian and European finance ministers on Sunday that China favored a flexible currency but would not be rushed into action as much preparation was needed to avoid economic shocks.
"The Chinese confirmed they like the idea of a revaluation but they will not be pushed around by the United States," said Tim O'Sullivan, chief dealer at Gain Capital in Warren, New Jersey.
The euro was boosted by some traders reversing bets that the euro zone currency would fall below the $1.20 level on a sustained basis. The euro hit a 10-month low below $1.20 last Friday but bounced back.
The $1.20 level "is pretty supported and tough to get through," said Tim Mazanec, senior currency strategist with Investors Bank & Trust in Boston.
Traders noted that most foreign exchange action had already occurred before the New York session even began.
Since mid-March the euro has tumbled 10 percent against the dollar as investors fret about Europe's poor growth prospects and political upheaval in the European Union.
But currency analysts said the euro's rebound may be short-lived as the interest rate differential between the euro zone and the United States is set to widen.
The Federal Reserve is expected to raise rates by a quarter percentage point to 3.25 percent at a two-day policy meeting ending on Thursday, whereas the European Central Bank has held rates steady at 2 percent for more than two years.
"It's range city until we get direction on Thursday," said Investors Bank & Trust's Mazanec.
Despite Monday's strength in the euro, "the market believes (the euro) will go lower and is positioned for that," said Michael Jansen, currency strategist at National Australia Bank in New York.
Mazanec, noting that next Monday is the July 4th Independence Day holiday, asked: "Who will be putting positions ahead of the three-day weekend?"
