Tuesday May 5, 2009 - 20:57:41 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar rebounds from one-month low as stocks retreat
* Dollar rebounds from one-month low versus euro
* Uncertainty ahead of ECB meeting weighs on euro
* U.S. bank stress tests, ECB meeting increase caution
(Updates prices, adds comments)
By Wanfeng Zhou
NEW YORK, May 5 (Reuters) - The dollar rose against the
euro on Tuesday, rebounding from a one-month low, as U.S.
stocks retreated from a rally and revived some safe-haven
buying of the greenback.
The euro fell from its best level since early April as
traders took profits on its recent gains ahead of the European
Central Bank's policy meeting on Thursday when the central bank
may announce nonconventional measures to stimulate growth.
Investors were also looking ahead to the release of the
U.S. government stress test results, due on Thursday, which may
show that about 10 of the 19 largest U.S. banks under review
will need to raise more capital. See [ID:nN04395186].
"Equities have come off somewhat and the dollar has given
back some of its losses," said Michael Woolfolk, senior
currency strategist at The Bank of New York Mellon in New
Woolfolk added that the market may have also become "overly
optimistic" about an economic recovery following the recent
spate of better-than-expected data around the world.
"The stress test will have some negative implications," he
said. "Despite the fact that we've had some good numbers
recently...we have conditions which I think really call for
Hopes that the world has already endured the worst of the
recession have boosted stock markets in recent weeks and dried
up safe-haven flows into the dollar .DXY, which lost about 4
percent against a basket of currencies in March and April.
In late New York trading, the euro was last down 0.6
percent at $1.3317 <EUR=>, accelerating its losses in afternoon
trading. It had earlier hit a one-month high at $1.3439,
according to EBS.
The euro also fell 0.6 percent to 131.82 yen <EURJPY=>,
while the dollar was little changed at 98.97 yen <JPY=>.
Federal Reserve Chairman Ben Bernanke said Tuesday the U.S.
economy was on track for a recovery but said the rebound would
be slow and the jobless rate would still rise. [ID:nN05470010]
Minneapolis Fed Bank President Gary Stern echoed the same
sentiment, saying U.S. recovery is likely not "too far off,"
but the initial stages of the turnaround will likely be slow,
with credit strains persisting. See [ID:nNYS005041].
"Everybody has been mildly bullish and everybody continues
to be optimistic that we're starting to see some signs of
recovery," said Steven Butler, head of FX trading at Scotia
Capital in Toronto. "But the (foreign exchange) market is going
to be a little bit disappointed that we can't really break out
of the ranges."
Some in the market said they were wary of taking on too
much risk ahead of Thursday's policy announcements by the
European Central Bank and Bank of England.
The ECB is expected to cut its main interest rate to a
record low 1 percent, while the BoE is seen holding rates at
0.5 percent, also a record low.
More importantly, markets want to see if the ECB suggests
it will keep cutting rates or adopt "non-conventional" policy
measures such as buying securities to stimulate growth.
Shaun Osborne, chief currency strategist at TD Securities
in Toronto, however, said the euro could resume its rally,
possibly to $1.35 and beyond if the ECB opts not to adopt
"If there's reluctance to go down that road, it provides a
window for the euro to rally," he said.
Sterling was last up 0.3 percent at $1.5075 <GBP=> after
earlier hitting a four-month peak at $1.5161.
(Additional reporting by Steven C. Johnson; Editing by Kenneth
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