Euro gains on better money market conditions, China data
Frankfurt (Dec 9) The euro rose to a six-week high against the dollar and a five-year peak versus the yen on Monday, helped by tighter money market conditions in the euro zone and China's strong trade numbers which have boosted investor tolerance for riskier currencies.
Europe's common currency stayed strong despite last Friday's better-than-expected U.S. non-farm payrolls report, tepid economic conditions in the euro zone, and constant reiteration by European monetary officials that interest rates would remain low for some time. The euro is now within striking distance of its yearly highs.
Further helping risk sentiment were strong trade numbers from China. Its exports came in well above forecast in November, rising 12.7 percent from a year earlier, while imports rose 5.3 percent.
"The strong labor data out of the U.S. and the robust trade balance numbers from China suggest that global growth may be better than consensus view," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
"Under that scenario, both the U.S. and China could act as locomotives for global GDP expansion and help lift the euro zone out of its funk."
The euro rose as high as $1.3728 and was last at $1.3722, firmer on the day as short-term interest rates in the euro zone money market edged up with the chances of more easing by the European Central Bank looking slim for now. <MMT/>
Against the yen, the euro climbed to 141.56, reaching highs not seen since October 2008. It was last trading at 141.38 yen, up 0.3 percent on the day, ignoring a drop in euro zone sentiment and a fall in German industrial output.
The euro's rise nudged the dollar index .DXY down 0.1 percent to 80.203, having hit a near six-week low of 80.169 earlier in the day.
The dollar tracked lower U.S. Treasury yields, which failed to get traction from a strong U.S. payrolls number. U.S. employers hired more workers than expected in November, driving the jobless rate to a five-year low of 7.0 percent.
But the better-than-expected jobs number was not robust enough to lead markets to price in an immediate withdrawal of monetary stimulus by the Federal Reserve. That pushed U.S. Treasury yields lower and dragging the dollar down.
Still, Camilla Sutton, chief currency strategist at ScotiaBank in Toronto, said the overall U.S. economic environment suggests that tapering is likely to happen in January.
"The Fed will work hard to push out expectations for higher rates as it tapers and there is a risk of a decision to lower the unemployment threshold," said Sutton. "In this environment we would expect the U.S. dollar to be broadly stronger."
A Reuters poll showed Wall Street firms expect the Fed to start reducing its massive bond-buying program no later than March, though with only a handful of them expecting action as early as next week.
Fed policymakers like Jeffrey Lacker, Richard Fisher and James Bullard will speak later, with traders keen to hear any hints on when tapering will begin. <FED/DIARY>
The only speaker who is a voting member of the Federal Open Market Committee this year is Bullard, however. He recently said a strong payrolls number would raise the chance of tapering in December.
The dollar fell to a 1-1/2 month low against the low-yielding safe-haven Swiss franc, with the latter also buoyed by growing signs that deflation in Switzerland was abating and the economy was growing. The dollar fell to 0.8905 franc, its lowest since October 25.
Against the yen, the dollar held firm at 103.08 yen, up 0.2 percent, following Friday's 1.1 percent rally, not far from the six-month peak of 103.38 hit on Tuesday. The yen continued to underperform on the Bank of Japan's ultra-loose monetary policy and the pick-up in risk appetite.
Data on Monday showed Japan's current account balance unexpectedly fell into the red in October, underpinning the dollar against the yen.