A recovery in oil prices early in European trade quickly gave way to
another bout of the selling that has dominated the first month of
2016 on major stock and commodity markets.
The euro - until now also considered a safe haven for investors -
fell almost 1 percent against the yen as European bank shares fell
and the cost of insuring debt against default jumped. It fell 0.4
percent against the dollar, to $1.1121 <EUR=EBS>.
"The strong yen stands out," said Stephen Gallo, a strategist with
BMO in London. "As long as we remain in such a risk-off environment,
there's no point in trying to catch that falling knife."
A rise in oil prices during Asian trading had helped
commodity-linked currencies like the Australian and Canadian dollars
gain, but that advance faded as crude turned lower.
Concern over economic growth drove the U.S. dollar to its worst
performance in more than four years last week, until solid numbers
on unemployment and wage growth helped it stabilize on Friday.
But with the market abandoning bets that U.S. interest rates would
rise this year, the dollar remains under pressure. Even after
Friday's gains, the U.S. currency lost 3.6 percent against the yen
last week, its biggest weekly drop since July 2009.
"Ultimately, the dollar is still likely to trade on a weaker
footing," said Lee Hardman, a currency economist with Bank of
Tokyo-Mitsubishi-UFJ in London.
"We adjusted lower on the outlook for U.S. growth last week and
obviously the data on Friday showed the labor market is improving.
But we need to see evidence of that continuing."
[to top of second column]
Against a basket of currencies, the dollar inched up less than 0.2
percent to 97.215 It fell 0.5 percent to 116.23 yen.
One big risk of the past month - China's problems with growth, debt
and the threat of currency depreciation - may be on hold for the
week-long Lunar New Year holiday.
Data over the weekend showed the decline of China's foreign exchange
reserves slowed to just below $100 billion last month. That was less
than expected, but analysts said the numbers were still a warning
that Beijing must stem a flight of domestic capital or be forced to
allow the yuan <CNH=> to weaken.
"My impression is that there is virtually no reserve armory big
enough to cope with widespread capital outflows, if capital is
allowed to flow relatively freely," Societe Generale strategist Kit
Juckes said in a morning note.
"Which is just to say that even if the market does calm down over
the festive period, this is a story which will return."
(Editing by Larry King)
[© 2016 Thomson Reuters. All rights
Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.