By Deborah Levine
The U.S. dollar dropped by the most in three weeks against the
euro on Monday as renewed investor appetite for equities and other
assets undercut safe-haven demand for the greenback.
Strategists said a recovery in overall sentiment despite
Friday's weaker-than-expected U.S. retail sales data helped lift
Asian and European equities, giving U.S. stock indexes reason to
rise more than 1%.
A stronger-than-expected 0.8% monthly rise in April euro-zone
industrial production on Monday added to positive sentiment,
allowing the beleaguered single currency to extend a rebound.
The euro (CUR_EURUSD) rose to $1.2290, up from $1.2087 in North
American trade late Friday, its biggest increase on a closing basis
since May 21. The single currency hit a four-year low around $1.19
earlier this month.
The dollar index (DXY), which measures the greenback against a
basket of major currencies, fell to 86.249 from 87.469 on
Friday.
The greenback gained against the Japanese yen to buy
¥91.77 (CUR_USDYEN), up from ¥91.65 on Friday. The yen,
like the dollar, tends to benefit from safe-haven flows and to fall
when investors show increased willingness to move into riskier
assets, including stocks.
"This is the first substantial upside correction in the euro in
the better part of two months," wrote economists at Brown Brothers
Harriman. "The euro's move above its 20-day moving average puts
momentum traders on alert. While the next target comes in near
$1.2300, given the extended positioning and the pace of the losses
in recent weeks, a short-covering fueled recovery can exceed
technical objectives."
On Friday, a stronger-than-expected rise in the University of
Michigan's consumer-confidence reading helped kickstart risk
appetite, strategists said.
Still, the euro looks likely to weaken against emerging market
currencies and growth in the euro zone will be weak compared to
many developed economics, according to Pimco.
"The euro will continue to weaken against emerging market
currencies, reflecting relative growth dynamics in Europe versus
better prospects in emerging market countries, portfolio manager
Andrew Balls said in a note released Monday on the fund firm's web
site.
The euro still doesn't look cheap against the U.S. dollar, he
said.
"At minimum the euro-zone crisis is likely to deter investors,
including government sector investors, from increasing their
exposure in the euro-zone and could lead to a reduction in euro
exposure," Balls said.
British pound, Korean won
A lower estimate for U.K. government borrowing helps the British
pound (CUR_GBPUSD), which rose to $1.4796, up from $1.4521
Friday.
Britain's new independent watchdog lowered its estimate of U.K.
borrowing needs ahead of Chancellor of the Exchequer George
Osborne's emergency budget on June 22.
Attention on Tuesday will turn to May inflation data, which is
expected to remain above the 3% mark on an annual basis for the
fifth consecutive month.
That could begin to drive sterling-friendly expectations for the
Bank of England to begin hiking interest rates more quickly than
previously expected -- and more quickly than the U.S. Federal
Reserve, the European Central Bank and the Bank of Japan, the BBH
strategists wrote.
Meanwhile, the South Korean won (C_KRW) continued its wild ride
to surge in Monday trading, with the U.S. dollar falling 2.4% to
1,220.33 won, down from 1,246.10 won late Friday and an intraday
high of 1,270.10 won on Thursday, according to data from FactSet
Research.
The volatility came after Seoul unveiled on Sunday new
foreign-exchange trading regulations meant to stop such wild swings
in the currency.
While earlier news reports signaling the currency controls had
seemed to weigh on the won, a 1% gain in the benchmark Kopsi stock
index was tagged as a reason for the unit's gains Monday.