The dollar fell in thin trade on Monday, with the euro one of the biggest beneficiaries as traders took note of market positioning and adjusted their holdings ahead of new year holidays. The euro gained after futures market data released on Friday showed a sharp reversal in positioning by speculators that analysts said indicated that the euro was likely to resume its uptrend against the dollar after its recent consolidation. A European Commission report, which said the euro, was not yet substantially out of line with fundamentals also lent the single European currency support, analysts said.
"While there will still be dips in the euro and it is not going to be a straight line up, it does look increasingly positive for the currency," said Sean Callow, currency strategist at research firm IDEAglobal in New York.
By late afternoon in New York, the euro was up 0.7 percent at $1.3398.
The euro also rose smartly against the yen after the Japanese government said it expected the economy to grow just 1.6 percent in the next fiscal year compared with a forecast of 2.1 percent in the current year.
Euro/yen rose 0.6 percent to 139.43 yen.
The news from Japan also kept the dollar supported against the yen, and the US currency was down just 0.1 percent at 104.05 yen.
The dollar fell 0.7 percent to 1.1480 Swiss francs, but held steady against the Canadian dollar at C$1.2275.
The only US economic data on Monday were largely shrugged off by the market. The Conference Board said its index of leading indicators rose 0.2 percent in November compared with a downwardly revised 0.4 percent decrease in October, ending five straight months of declines.
The foreign exchange market also showed little reaction to comments by Richmond Federal Reserve President Jeffrey Lacker, who took the helm in August.
Lacker said he did not expect the weaker US dollar to affect the country's inflation and noted that a lower dollar ought to help spur US exports and contain imports.
Data from the US Commodity Futures Commission on Friday showed International Monetary Market accounts were short euros on a net basis in the week to December 14.
That was the first time the IMM accounts have held a net short position in euros since November 2001.
Short positions essentially are bets that a currency will weaken. Analysts said the fact that speculators had got so heavily short euros while the spot euro/dollar rate had fallen only slightly indicated that long-term players, such as central banks, had been buying euro even as speculators were selling.
That suggested that the euro remained well supported even after dropping from its all-time high of $1.3470 struck in early December to a recent low near $1.3135.
"The fact that the euro declined by only three cents from its highs means that the non-speculative interest in the currency remains solid and the more durable money is still underpinning the European currency," said Ashraf Laidi, chief currency analyst at MG Financial Group in New York.
In Brussels, the European Commission said the euro was strong but not yet substantially out of line with fundamentals although the real exchange rate was a bit above its long term average and the region's competitiveness had worsened in the past three years.
"We do see the euro outperforming today, and it was helpful that the European Commission report mentioned that the euro was not far from fundamentals," said IDEAglobal's Callow.
"It does make it hard for the ECB (European Central Bank) to push the notion of intervening because of an overvalued euro," he said. The euro has appreciated by some 6 percent since the start of this year.
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