The US dollar rebounded in volatile trade on Thursday after the euro failed again to hold above $1.40 and as investors turned cautious before a G20 finance ministers meeting this weekend. The euro had earlier climbed to a high around $1.4050 but failed to sustain gains above key resistance at $1.40 for a second day this week. It also retreated after US stocks came under pressure intraday.
The euro will likely stay in its recent range of between $1.3650 and $1.4150 in the coming days as investors wrestle with uncertainty over the size of expected US monetary easing, traders said. The Federal Reserve is expected to pump more money into the economy next month, likely through direct purchases of Treasury debt.
"There seems to be a willingness to sell euros above $1.40," said John McCarthy, director of FX trading at ING Capital in New York. "We sort of ran into the top of the recent trading ranges." In late trading, the euro fell 0.3 percent to $1.3921, after rising as high as $1.4051 on trading platform EBS, with traders citing selling by Middle East accounts.
European central banker Christian Noyer said there was no problem with the euro at its current level, and it was an "over-simplification" to call the single currency overvalued. Many analysts note $1.40 as a key resistance level, which draws corporate selling interest as companies repatriate their earnings from Europe. Caution ahead of the G20 meeting also helped the dollar regain ground, and analysts said any joint statements by members agreeing not to devalue their currencies could spur a dollar rebound.
While traders were far from convinced G20 ministers would solve their exchange rate disagreements once and for all, some said there was reluctance to take extreme positions.
Chris Turner, chief currency strategist at ING, said that if the G20 acknowledges that emerging Asia will have to reform their exchange rate systems and embrace flexibility, it would make a good start to address the global currency war. Against the yen, the dollar was up 0.3 percent at 81.34 yen after hitting a session low of 80.91, not far from a 15-year low at 80.84 set on EBS on Wednesday. Sterling fell 0.9 percent to $1.5704 as weak retail sales data stoked speculation that the Bank of England could engage in more monetary easing.
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