Dollar retains broad gains, euro near 7-month lows

By Anirban Nag

SYDNEY (BestGrowthStock) – The U.S. dollar’s strength gathered steam on Monday, while the euro huddled near seven-month lows as fiscal worries in the euro zone prompted investors to add to short positions in the single currency.

Investors unwound leveraged carry trades funded in the yen on reports regulators could move to curb them. Also, political worries, especially China’s protest over the weekend of a $6.4 billion U.S. arms sales to Taiwan weighed on sentiment.

Markets are bracing for a huge week with a number of major central bank meetings across the world, a raft of economic reports out of the United States, culminating in the non-farm payrolls data on Friday.

Stronger-than-expected gross domestic product (GDP) data late last week reinforced the view the United States was recovering from recession faster than the euro zone and Japan.

The U.S. economy grew at a 5.7 percent annual rate in the fourth quarter, its quickest pace in more than six years. That sent the U.S. dollar higher, especially against the struggling euro.

“So you have this situation where growth in the U.S. is turning out to be broad based while the pace of growth in the euro zone is showing signs of slowing,” said Richard Grace, chief currency strategist at Commonwealth Bank.

“The U.S. dollar is looking good from here, especially against the euro, while the commodity currencies are taking a hit on renewed concerns about global growth.”

The dollar index (Read more about the global trade. ) was at 79.45 (.DXY: ), hovering near its highest since August, with the index looking increasingly bullish on the charts and a test of 80 on the cards.

The euro traded at $1.3862, having eased to as low as $1.3850, its lowest level since early July, according to Reuters data. It lost more than 0.7 percent on Friday, capping a week in which it posted it weakest performance in six weeks.

The euro has lost over 3 percent this year as concerns about the fiscal health of some of the smaller euro zone countries including Greece and Portugal mounted.

Latest data from the Commodity Futures Trading Commission showed speculators increasing their short positions against the euro and going long of the U.S. dollar. The value of the dollar’s net long position was $3.11 billion in the week to Jan 26, reversing a net short position of $3.12 billion in the previous week (IMM/FX: ).

The euro was also weak on the yen at 124.98 yen, not far from its April low of around 124.38 yen with talk of option barriers at 124.40 yen.

The dollar was slightly softer on the yen at 90.12 yen, from around 90.29 yen late on Friday when it gained nerly 0.5 percent.

The yen was stronger on the Australian dollar, partly because of a loss in risk appetite and speculation regulators could try and curb carry trades.

The Aussie was down at five-week lows on the yen around 79.62. The Aussie was also weaker on the U.S. dollar, down at $0.8841, having fallen to as low as $0.8800 earlier.

A report in the UK Sunday Times quoted the head of Britain’s Financial Services Authority saying he would like to restrain carry trades, where investors borrow at low rates in one currency to buy a higher yielding currency.

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(Editing by Wayne Cole)

Dollar retains broad gains, euro near 7-month lows