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 Euro zone inflation was in line with expectations at 0.5 percent,
reinforcing the need for the European Central Bank to run very loose
monetary policy but well short of a reading that would demand more
action from a monthly meeting on Thursday.
The euro <EUR=EBS> has been creeping higher since mid-June, retaking
some of the ground lost after the bank took steps to pump yet more
money into the economy a month ago.
All of the broader market and economic trends that have supported
the single currency this year remain intact but many analysts are
again pointing towards growing momentum in the U.S. economy which
should eventually support the dollar.
Dealers wonder whether an expected $9 billion fine for BNP from U.S.
authorities could lead to the French bank exchanging billions of
euros for dollars within the next few weeks. Some players said they
had seen no sign BNP had taken steps to hedge the fine by
accumulating dollars, or the right to buy dollars.
Others pointed to the bank's U.S. business, which may help reduce
the volume of euros it must sell, and a generally sophisticated
trading operation which they said should have acted to save the bank
money on the necessary dollar purchases.
"There is a debate going on about the extent to which they have
hedged this deal," said a London-based strategist with one large
European bank.
"They may well have a lot of it already. They do have a U.S.
business, but it does look like a lot of money that might have at
least a temporary impact on the euro."
The other element to the settlement with U.S. authorities, expected
to be announced late on Monday U.S. time, may be bans on BNP
converting foreign currencies to dollars on behalf of clients for
some businesses for as long as a year.
Several currency traders said they believed BNP would still be able
to make other arrangements to clear through correspondent banks or
other units.
YEN HIGHS
Another fine a month ago, for Credit Suisse, moved the dollar higher
against the franc. The euro was unchanged against the dollar in
morning trade in Europe at $1.3653.
The dollar has been in weak form in recent weeks and was close to a
more than one-month low against a basket of major currencies on
Monday. Some backward-looking U.S. data last week gave investors no
reason to expect higher U.S. interest rates any time soon.
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This week, all eyes are on non-farm payrolls figures due a day
earlier than usual, on Thursday, and expected to show the creation
of another 210,000 jobs in the past month.
"If we get a strong print, it will be the fifth time in a row that
we have been over 200K," said Peter Kinsella, a strategist with
Germany's Commerzbank in London.
"It should only be a matter of time before the dollar finally begins
to gain some traction. The euro will probably trade in a very tight
range but it is probably a sell on the rallies."
The dollar index was last at 80.019, a touch lower on the day and
not far from levels of 80.014 touched on Friday and not seen since
May 21. Last week's fall was its biggest in more than two months,
and put it on track for a flat half-year.
The yen hit a 5-week low of 101.235 yen in Asian trade.
Masashi Murata, currency strategist at Brown Brothers Harriman in
Tokyo, noted how many investors had been disappointed by the
dollar's performance this year.
"Most people said the U.S. dollar should be stronger than the yen in
the first half of the year based on higher Treasury yields," he
said. "Some people might try to sell the dollar/yen more (from
here)."
(Editing by Louise Ireland)
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