The dollar steadied against the yen and the euro on Friday, clinging to gains made the previous day as investors grew more confident about the outlook for the troubled US financial sector. The dollar has gained support as earnings reported by major US banks so far this week, including Merrill Lynch's earnings announcement on Thursday, have largely been devoid of nasty shocks.
With concern about the fallout from the credit market turmoil ebbing for now, the dollar could soon try for one-month highs against the yen, traders said."Investors are taking more risks, selling the yen," said Hiroshi Yoshida, a forex trader at Shinkin Central Bank. "It's a little like what we saw in the heyday of carry trades before the subprime woes rattled financial markets."
In carry trades, market players use low-yielding currencies such as the yen to finance buying of assets offering higher returns elsewhere. The dollar could rise to above 103 yen if the market's sentiment turns more optimistic after an earnings announcement by Citigroup later on Friday, said Akira Kato, senior manager for Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading department.
The dollar inched down 0.1 percent to 102.40 yen hovering near a one-month high of 102.95 yen hit in early April. The euro was little changed at $1.5905 having electronic trading platform EBS on Thursday. The euro dipped 0.1 percent to 162.80 yen and pulled away from a peak of 163.24 yen hit the previous day, which was the highest since early January.
The euro fell from its high versus the dollar on Thursday due to remarks by Jean-Claude Juncker, chairman of a group of euro zone finance ministers, who said that financial markets had failed to understand the message from the Group of Seven financial leaders on foreign exchange.
Juncker also said he did not consider the euro's rise against the dollar was desirable. In their post-meeting statement issued last Friday, the G7 nations abandoned their long-standing language on currencies and expressed concern that sharp moves in major currencies could undermine economic and financial stability.
Despite the relief over earnings announcements by US banks and the comments by Juncker, however, the scope for any dollar rebound seems limited for now, traders said."It is not as if market players are looking to buy the dollar actively or to take long dollar positions at this point," said the head of foreign exchange sales for a US investment bank.
The dollar has been dogged by market expectations for the US Federal Reserve to lower interest rates further from the current 2.25 percent later in April. That has contrasted with expectations for the European Central Bank to keep rates at 4.0 percent for a while.