US dollar recovers vs Euro

April 9, 2014

Frankfurt (Apr 9)   One striking trend on the majors since last week is the euro's resilience in the face of signals from the European Central Bank that it is prepared to consider outright money printing to support growth if need be.

A number of dealers said the single currency was being supported by China's need to re-order the balance of currencies it holds in its reserves after buying billions of dollars last month to weaken the yuan. Similarly, many pointed to signs of intervention by South Korean authorities overnight that may support the euro going forward.

The refloating of the euro zone's struggling southern states on bond markets, exemplified on Wednesday by Greece's announcement of its first bond sale in four years, has also drawn capital back into Europe this year.

"A lot of people thought the euro would go lower (after the ECB last week), then it didn't," said Graham Davidson, a currency trader with NAB in London.

"I think there are two reasons for that: the euro is still supported by a solid trade surplus and there have been some signs of reserve diversification by a number of central banks."

The euro was flat against the dollar, but firmly in the upper half of its recent range, at $1.3800.

The dollar had weakened by more than 1 yen on Tuesday - its worst drop in more than seven months - and it has fallen steadily since U.S. jobs data on Friday, which failed to provide the impetus some had expected for a push higher.

Its recovery on Wednesday left major markets back trading in the tight ranges they have held for most of this year.

"It's not a bad level to buy back into the dollar here (against the yen)," Davidson said.

"I tend to think the action we have seen on U.S. (market interest) rates is just a squeeze and they will start to build higher again. That should take the dollar higher."

After hitting lows of 101.55 in U.S. trade on Tuesday, the dollar recovered to 102.04 yen on Wednesday. The euro also added about 0.2 percent, to 140.77 yen.

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