The dollar notched some modest gains versus the euro in thin, wide-swing, pre-holiday trading today, with the pair sticking mostly within a range of $1.4370 and $1.4270.
Gains in European and U.S. share markets lifted risk appetite, but did not seem to have a significant effect on the USD pairs. The European Commission said today that the euro was overvalued and that its further appreciation could hurt the more open economies in the euro zone. This put some pressure on the euro throughout the day.
Ahead of the year-end, the dollar has been supported as investors cut back on short dollar positions, though some traders said the U.S. currency's gains could begin to slow as many of these positions have already been closed.
Investors have been closely watching the Swiss National Bank after it altered its intervention stance earlier this month, saying it would act only to counter an excessive appreciation of the franc versus the euro. But investors continued to worry about the chances of intervention. In earlier trade, the franc fell sharply against the dollar. Traders said it was due primarily to a large USDCHF buy order by a large commercial bank.
The Australian dollar fell 0.7 percent against the USD to $0.8852, close to a 10-week low as FX traders continued to lower expectations for how high Australian rates will rise next year.
The dollar rose as high as 91.17 yen today (at the time of writing), its highest level since early November. This has been the second day of USD gains against the JPY as investor sentiment is gradually shifting to the view that the U.S. economy is reviving and that the Federal Reserve will raise interest rates sooner rather than later. Most U.S. government securities dealers still expect the Fed to hike rates by the end of the first quarter of 2011, with only the most optimistic seeing an increase during the second quarter of 2010. However, solid figures on the U.S. job market and retail sales earlier this month have prompted talk that the U.S. economy may recover sooner than the euro zone and Japan, helping the dollar maintain its upside momentum. Also, profit-taking has taken a part in recent dollar strength, as traders have taken the year-end opportunity to book gains from short dollar/yen positions.
Oil prices held firm above $74 a barrel today, following reports of oil pipeline attacks in major exporters Iraq and Nigeria over the weekend, and as cold weather in the United States and Europe raised the prospect of increased fuel demand. Crude rose as high as $75.20, before plummeting $2.00 at around 16:00 GMT. Gold suddenly fell at approximately the same time. This drop might be correlated with unsettling political events that suddenly transpired in Iraq and Iran at around the same time, or unexplained institutional trading. Seperately, Iranian troops partly withdrew from a disputed oil area in Iraq over the weekend, reducing tensions between two major crude exporters that had helped to boost oil prices by 1 percent on Friday. Trading was thin today during a holiday-shortened week and ahead of tomorrow's meeting of the Organization of the Petroleum Exporting Countries in Luanda, Angola.
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