The dollar rose against the euro on Monday, extending its recovery from a record low hit last week as investors sold commodities such as oil and gold and bought back the US currency ahead of the end of the first quarter. The dollar was also supported by the Federal Reserve's aggressive efforts to ease the credit crisis.
Activity was subdued in Asia, however, as markets in many parts of the region as well as in Europe remained closed, with investors waiting for US trade to resume later in the day. "Investors are taking profits on any assets that have rallied in the past months ahead of the end of the first quarter," said a senior currency trader at a big Japanese bank. "This could last for a few more days. "The euro is likely to slide further as many still hold long euro positions with hefty unrealised profits," the trader said.
The euro fell 0.4 percent to $1.5370 from around $1.5445 in late Asian trading on Friday, slipping further from a record high of $1.5905 struck on electronic trading platform EBS last week. The single currency hit a record peak versus the dollar after the collapse of US investment bank Bear Stearns in mid-March fanned concerns about the spreading credit crunch.
But confidence in US assets was partially restored after the Fed unveiled steps to relieve the credit crisis, helping the dollar. Among an array of initiatives, the US central bank pushed 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 is 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, though there was little reaction during Tokyo trading.
The Australian dollar slid near a one-month low against the US currency as commodities extended last week's deep falls and gold dropped close to a one-month low touched on Thursday. "The profit-taking moves are seen across the markets and the Aussie is included as a selling target along with commodities," said Shuichi Kanehira, a senior trader at Mizuho Corporate Bank.
The Aussie dropped 0.2 percent to $0.9000 and fell near $0.8954 touched on Thursday, slipping from a 24-year high around $0.95 hit late last month. Despite the dollar's broad rise in the past few sessions, many traders expect further gains to be limited.
The Fed and the Bank of England denied a report on Saturday that they were in talks over possibly using public funds to make mass purchases of mortgage-backed securities - key financial instruments which have plunged, wreaking havoc on banks' balance sheets and shares - to ease the credit crisis.
The dollar rose 0.3 percent against the yen to 99.90 yen keeping some distance from a 13-year low of 95.77 yen hit on EBS early last week. Many market players believe the US currency is unlikely to fall below that 13-year trough in the short term as the Bank of Japan is not expected to raise benchmark interest rates soon from the current 0.5 percent - the lowest among industrialised nations.
Government data showed on Monday that big Japanese manufacturers' confidence in business conditions tumbled to a new low in January-March, adding to the view that the BoJ will stand pat for a while. At the same time, the dollar is not expected to rise sharply above the psychologically key 100 yen level as Japanese exporters, many of which are worried that the dollar is still in a downward trend, are seen likely to sell it above that level.