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 The dollar <.DXY> fell broadly, after a drop in U.S. shares and bond
yields dimmed its allure, with markets focused on this week's
Federal Reserve policy meeting. It fell 0.4 percent against the
safe-haven yen <JPY=> with an 8-percent drop in Chinese stocks
affecting global risk sentiment, traders said.
The euro rose 1.2 percent to $1.1113 <EUR=>, from about $1.1084
before the Ifo survey was released. Against the Swiss franc, it rose
to 1.0602 <EURCHF=>, its highest since March 23.
The Munich-based Ifo institute's business climate index, based on a
monthly survey of some 7,000 firms, rose to 108.0 from a revised
107.5 in June. That beat the Reuters consensus for a drop to 107.2
and was at levels consistent with a positive pace of growth. <ECONDE>
Analysts said that would support the European Central Bank's
assessment that the outlook has not changed much over the past
couple of months, despite the Greek crisis. Still, many suspect the
ECB is becoming more concerned about weaker commodity prices, which
are likely to depress euro zone inflation expectations.
"A risk-off sentiment is prevailing, which is putting popular
consensus trades under pressure. As a result, we are seeing a short
squeeze in the euro/dollar and euro/sterling," said Nomura currency
strategist Yujiro Goto.
"Any positive impact from Ifo on the euro will be brief. Over the
medium term, we expect the dollar to gain the upper hand."
The euro has lost as much as 5 percent against the dollar since
mid-June on worries about Greek debt and the divergence of U.S. and
European monetary policies, but a technical correction to the
dollar's rally gave the euro some respite last week.
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The market will watch the July 28-29 Fed meeting to see if
policymakers provide clues for the timing of a rate "lift-off".
Steadily rising expectations that the Fed could begin hiking rates
as early as September have been a major factor behind the dollar's
gains over the past month.
Aside from the Fed, the focus was on the impact of lower commodity
prices. The currencies of major commodity exporters such as Canada,
Australia and Norway have already been hit, but commodity-importer
currencies such as the yen are also expected to feel a positive
impact.
"Falling commodity prices have added to global growth concerns,
contributing to falling risk appetite," Morgan Stanley analysts
wrote in a note.
U.S. crude <CLc1> traded near four-month lows on Monday, dogged by
concerns over oversupply and potentially weaker demand from major
consumers, including China. [O/R]
(Editing by Kevin Liffey)
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