The dollar rose against the euro on Friday, edging up from a one-year low hit the previous day, as investors covered short positions in the wake of the greenback's slide during the week. The dollar has retreated broadly since March as investors shift into riskier assets due to increasing signs that the global economy is on the mend, and it extended its losses this week as equities and commodities rallied.
But the battered US currency gained some reprieve on Friday as investors trimmed their positions ahead of holidays in Japan and Singapore next week, although the trend for broad dollar weakness was seen as likely to persist. "There is a lot of money sloshing around and that situation is likely to continue, since exit strategies are unlikely to be implemented very soon," said Akira Hoshino, chief manager for Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading department.
"Money that had been parked in dollars has been seeping out gradually and that trend is continuing," he said. The euro dipped 0.2 percent from late US trading on Thursday to $1.4717. The euro, which hit a one-year high of $1.4768 on trading platform EBS on Thursday, has risen about 2.8 percent in the past two weeks.
The dollar edged up 0.2 percent against the yen to 91.30 yen, having rebounded from a seven-month low of 90.12 yen hit on Wednesday. The yen reached that peak against the dollar after Japan's new finance minister, Hirohisa Fujii, said on Wednesday he opposed currency intervention as long as market moves were moderate.
Some disappointed traders cut yen buying positions versus the dollar after the currency came short of reaching the psychologically key 90.00 yen level this week even after Bank of Japan Governor Masaaki Shirakawa said on Thursday that a rise in the yen may support Japan's economy in the long term.
The dollar index, which measures the dollar's value against a basket of six major currencies, rose 0.2 percent to 76.353, having bounced off Thursday's one-year low of 76.010. Sterling fell 0.4 percent to $1.6383 and hit a four-month low against the euro after a source familiar with the matter said British regulators set tougher than expected terms on Lloyds' mooted exit from a government scheme to insure it against credit losses, hindering its departure from the programme.
Market players said the dollar's respite could prove short-lived. The dollar index has shed over 2 percent this month on mounting speculation the greenback is fast becoming the preferred funding currency for carry trades. Currency traders in Tokyo said the dollar could fall below 90 yen during Japan's three-day holiday period starting next Monday.
The Australian dollar fell 0.2 percent to $0.8707, down from a 13-month high of $0.8776 hit on Thursday. Strong support is expected to emerge at around $0.8680. The New Zealand dollar dipped 0.1 percent to $0.7100, having come off a 13-month high of $0.7159 hit on Thursday.