Dollar down on UAE moves

The dollar fell on Monday after the United Arab Emirates said it would stand behind banks in Dubai, soothing some concerns about a looming debt default. But investor confidence remained fragile, with the dollar briefly trimming losses after a top Dubai financial official said the Dubai government does not guarantee Dubai World debt and Dubai World creditors carry responsibility for their actions.
European shares were down 1.1 percent by midday trade, while US stock futures were slightly lower. The dollar's decline was initiated earlier in the global day as Asian equities rallied on the UAE central bank's pledge to provide emerging support to the region's banks and as Dubai's oil-rich neighbour, Abu Dhabi, offered to provide selective support to Dubai companies.
"The failure at the end of last week of the dollar to break the down trend that had been in place since March has seen the dollar slide back," said Michael Hewson, analyst at CMC Markets. By 1211 GMT the dollar index, a gauge of the greenback's performance against six other major currencies, was down 0.4 percent on the day at 74.70, back within sight of a 15-month low of 74.170 struck last week.
The euro rose 0.4 percent to $1.5030, just over a cent away from last week's 15-month peak just above $1.5140, and the Australian dollar was up two thirds of a percent at $0.9130. The yen also weakened, after a Japanese government minister said the government has agreed to try and stem the currency's rise, although he didn't specify what measures they might be.
"In light of the Dubai shock, we want to respond more aggressively than originally planned with an extra budget," strategy minister Naoto Kan, who is also deputy prime minister, told reporters. "We also want to stop the yen's rise and cooperate with the BoJ." Finance Minister Hirohisa Fujii denied a media report saying he would not intervene in currency markets, saying he had never said intervention was impossible. Separately, Bank of Japan Governor Masaaki Shirakawa said currency volatility was undesirable.
Derek Halpenny, European head of global currency strategy at Bank of Tokyo-Mitsubishi UFJ noted a "clear upturn" in Tokyo's concern about deflation and the strong yen. "There's some speculation about intervention and what kind of policy measures will be put in place," he said.
Meanwhile, there was little immediate impact on China's yuan policy after the eurozone's top economic officials met Chinese leaders over the weekend. The Reserve Bank of Australia meets on Tuesday. A decision to raise rates for a third straight time is seen a close call. Later in the week, market players will focus on the European Central Bank's decision on its one-year funding operation as it is expected to keep key rates steady on Thursday.