The dollar strengthened broadly on Monday, extending gains into a fourth session as investors unwound large bets in commodities to square up positions across a range of asset classes ahead of the end of the first quarter.
In holiday-thinned trade, investors continued to cash in on a sharp rally lately to historic highs in commodities such as oil, gold and wheat, at the same time cashing in bets against the dollar after driving it down to historic lows last week.
The Federal Reserve's aggressive action in recent weeks aimed at preventing further damage from the global credit crisis has also given the beleaguered dollar some breathing space.
The Fed and Bank of England denied a weekend media report that they were considering buying mortgage-backed securities to help ease the credit crisis, although a BoE spokesman said the Bank was considering a "number of other options".
Trading in Europe was anaemic owing to the Easter holiday, although activity should pick up when US markets open. "The dollar has traded firmer in the Asia session, boosted by a further unwind in commodity prices," wrote UBS currency analysts in a note to clients.
"The markets are still very clearly in a process of further de-leveraging with hedge funds liquidating crowded trades in commodities. We think risk/reward for tactical short euro/dollar and euro/Swiss positions continues to look attractive," they said.
At 1000 GMT, the euro was down 0.3 percent on the day at $1.5385, slipping further from a record high of $1.5905 struck on electronic trading platform EBS last week. The dollar rose 0.5 percent against the yen to 110.10 yen, keeping some distance from a 13-year low of 95.77 yen hit on EBS early last week.
The dollar index, a measure of the greenback's value against six major currencies, was up 0.4 percent at 73.045. Oil was down 1 percent at $100.72 a barrel on Monday, gold was flat at $918.70 an ounce, having both shed around 7.5 percent last week. Wheat futures, meanwhile, rebounded 1 percent on Monday after tumbling around 17 percent last week.
The euro's record peak versus the dollar last week came after the collapse of US investment bank Bear Stearns. But confidence in US assets, including the dollar, was partially restored after the Fed unveiled steps to relieve the credit crisis.
Among an array of initiatives, the US central bank encouraged J.P. Morgan Chase to acquire Bear Stearns, started lending directly to securities firms for the first time since the Great Depression and lowered the benchmark fed funds rates by 75 basis points to 2.25 percent.
Traders said a report in the New York Times that J.P. Morgan Chase was in talks to increase its offer for Bear Stearns to $10 per share from an initial $2 may give another boost to the dollar when US markets reopen on Monday. US existing home sales figures for February are due at 1400 GMT and are expected to show another decline.
But with much of the gloomy US economic news already factored in, commodities and quarter-end positioning could remain the key near-term drivers for the dollar.
"Never underestimate the power of the month and quarter-end, and of the fiscal year-end in Japan, to take prices swiftly and materially in a new direction as positions that were once materially profitable are now put in jeopardy and are slipping toward unprofitability," wrote independent investor Dennis Gartman in his daily note on Monday. "That is ... short positions against the US dollar, which were the driving force in so many large (and small) portfolios, are being unwound with a vengeance."
Comments
Comments are closed.