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 Amid lower-than-usual volumes due to a holiday in some parts of
Europe, the dollar held gains made after upbeat U.S. jobs data on
Friday. The reassuring data bolstered risk appetite and underpinned
higher-yielding currencies like the Australian AUD= and New Zealand
dollars NZD=.
The euro fell 0.15 percent to $1.3620 EUR=, having risen to $1.3668
earlier in the European session. It was still some distance from a
four-month low of $1.3503 hit on Thursday after the European Central
Bank cut its main rates to record lows, imposed a negative rate on
excess cash deposited with it and announced measures to pump money
into the sluggish euro zone economy, aiming to ward off the risk of
deflation.
"The yield differentials are moving against the euro and for us the
currency remains a sell on rallies," said Peter Kinsella, currency
strategist at Commerzbank.
"The ECB is inching towards QE while the U.S. data is picking up and
it's only a matter of time before the short end of the U.S. bond
market starts to price that in."
The ECB measures have given fresh impetus to a euro zone bond rally
that has driven borrowing costs in countries that were at the
forefront of the debt crisis to record lows.
German Bunds DE10YT=RR also outperformed U.S. US10YT=RR and UK
GB10YT=RR counterparts, driving the 10-year yield gaps to 2005 and
2010 levels respectively. The two-year T-note yield premium remained
close to its highest in seven years, underpinning the U.S. dollar.
Traders said large option expiries between $1.35 and $1.37, however,
would keep the euro in that range in the near term.
DOLLAR FIRM
The dollar index was up 0.1 percent at 80.50 .DXY, while the dollar
was flat against the yen at 102.45 yen JPY=.
The greenback made gains on Friday after data showed U.S. non-farm
payrolls increased by 217,000 last month. The report offered
confirmation that the world's largest economy has snapped back from
a winter slump.
Besides the robust U.S. data, analysts cited a number of other
factors likely to keep the yen under pressure.
"Right now there is also less reason to buy the yen, with factors
such as NISA, public pension funds and corporate M&A seen
diminishing the currency's allure," said Bart Wakabayashi, head of
forex at State Street in Tokyo.
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Nippon Individual Savings Account (NISA) is a new tax-break facility
for Japanese retail investors introduced in January and aimed at
driving massive savings into stocks and mutual funds, some of which
are expected to be invested in foreign assets.
Japan's public pension fund, the world's largest, has been working
to diversify its domestic bond-centric portfolio and any changes are
likely to have a significant effect on flows.
A recent increase in cross-border merger and acquisition activity by
Japanese companies is another factor seen pressuring the yen by
raising demand for foreign currencies.
Last week, Dai-ichi Life Insurance Co 8750.T, Japan's second-largest
private sector insurer, agreed to buy U.S. peer Protective Life PL.N
for $5.7 billion.
There was little market reaction to a series of data out of Japan.
First-quarter economic growth was revised up to 1.6 percent from a
preliminary 1.5 percent and the country posted a current account
surplus for a third straight month, albeit lower than expected, in
April.
The Australian dollar was up 0.3 percent at $0.9361, barely reacting
to the Chinese central bank's decision to cut the reserve
requirements for selected banks by 50 bps.
(Editing by Richard Borsuk & Kim Coghill)
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