Thursday August 10, 2006 - 23:20:01 GMT
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Reuters - www.reuters.com
FOREX-Dollar gains in technical rebound
FOREX-Dollar gains in technical rebound
Thu Aug 10, 2006 4:31pm ET172
(Updates prices, adds comment)
By Kevin Plumberg
NEW YORK, Aug 10 (Reuters) - The dollar rose on Thursday as dealers who had bet against the U.S. currency in the wake of the Federal Reserve's decision earlier in the week to hold interest rates steady liquidated their positions.
The euro's failure to break above recent highs after the Fed's decision on Tuesday was generally regarded as the main trigger for traders to unwind their short dollar positions and wait for better levels to sell the currency again.
"Despite the fact the Fed paused, the euro made its way up but is right back to square one," said Tom Benfer, vice president of foreign exchange with Bank of Montreal in New York. "We're still in the $1.25 to $1.30 range which we haven't broken even though the Fed paused," he said.
By early afternoon, the euro was down 0.6 percent at $1.2790 , not too far from an intraday low of $1.2750. The dollar was nearly unchanged at 115.25 yen and up 0.6 percent at 1.2340 Swiss francs .
A very large amount of options expiring between $1.2750 and $1.2925 through the end of the week, according to a large U.S. bank, could also be keeping spot euro trapped in narrow ranges.
Sterling fell in European trade after British police said they had thwarted a plot to blow up trans-Atlantic flights, and that move gained momentum as dollar buying picked up in the North American session.
Sterling, which hit a 15-month high above $1.91 early this week, was down 0.6 percent at $1.8935 , off a session low of around $1.8870, as selling that began on news of the plot picked up steam.
BOJ TO LIKELY KEEP RATES STEADY
Earlier this week, the dollar weakened after the Federal Reserve left interest rates on hold after 17 straight hikes, with the euro hitting two-month highs around $1.2910. But traders said lack of follow-through in dollar selling triggered a reversal.
"This isn't the beginning of a strong dollar trend, it's a technical correction amid a longer-term dollar decline," said Matthew Strauss, strategist at RBC Capital Markets in Toronto.
With U.S. interest rates now on hold and central banks in the euro zone and Britain seen pushing rates higher, the dollar stands to lose the yield advantage that has lent support in recent years.
But against the yen, the dollar has remained fairly resilient due in part to the greenback's wide yield advantage over Japanese debt instruments. The Bank of Japan is expected to keep rates steady at 0.25 percent after it meets to decide policy on Friday.
But Lehman Brothers head of foreign exchange strategy David Mozina offered multiple reasons not to be completely negative on the yen, including the fact that Japanese wholesale prices in July rose at their fastest pace in 25 years.
"The yen remains the cheapest of the G10 when looking at traditional long-term metrics," Mozina said.
High-yielding currencies were higher against the dollar on Thursday. The New Zealand dollar and the Australian dollar, both boosted by strong employment data in their respective countries, were up 0.6 percent at $0.6325 and 0.3 percent at $0.7665 , respectively.
Â© Reuters 2006. All Rights Reserved.
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