Greenback lifts from record lows

The dollar pulled away from a record low against the euro this week as robust US economic data gave investors little fresh impetus to sell the currency.

The dollar rallied after the ISM surveys of both the US manufacturing and services sectors came in ahead of forecasts.

Analysts said the data challenged the market’s pessimistic view of the world’s largest economy after disappointing first-quarter US growth figures released the previous week sent the dollar tumbling to an all-time low of $1.3680 against the euro.

This left the foreign exchange market to focus on Friday’s US employment report for further direction. However, the figures sparked little reaction as they came in slightly below expectations. They showed that the US economy added 88,000 jobs outside the agricultural sector in April, just shy of consensus forecasts for a rise of 100,000.

Ian Gunner at Mellon Financial said the jobs report told investors nothing new about the US labour market.

“The major news of this week remains the more upbeat readings on the two ISM surveys, which, if sustained, should mean better times ahead for the labour market anyway,” he said. “The week’s news remains dollar-positive overall and, given the current positional backdrop, further dollar strength is likely in the short-term as such positioning is pared back.”

Over the week, the dollar rose 0.4 per cent to $1.3590 against the euro, 0.5 per cent to Y120.10 against the yen and 0.3 per cent to $1.9920 against the pound.

Meanwhile, the yen came under pressure, falling to a fresh all-time low of Y163.60 against the euro on Thursday as benign market conditions continued to fuel investor demand for carry trades, in which the purchase of riskier high-yielding assets is funded by selling low-yielding currencies such as the Japanese unit. The yen eased 0.1 per cent to Y163.20 against the euro over the week.

The Swiss franc, investors’ second favourite funding currency, also hit a record low against the euro, dropping to a trough of SFr1.6535 on Tuesday.

However, the Swiss franc recouped some of its losses later in the week after stronger-than-expected consumer price inflation data fuelled expectations for more aggressive monetary tightening from the Swiss National Bank.

Over the week, the Swiss franc fell 0.2 per cent to SFr1.6460 against the euro and lost 0.6 per cent to SFr1.2110 against the dollar.

Meanwhile, the Australian dollar fell 1.1 per cent to a one-month low of $0.8210 against its US counterpart.

A cut in the Reserve Bank of Australia’s 2007 inflation forecast sparked the drop. The central bank said that the Australian dollar’s strength could add to downward pressure on inflation.

However, David Woo at Barclays Capital said unless Australian interest rates cuts began to be priced into the market, the Australian dollar would continue to be supported on dips by demand from carry trade investors. “The market is not pricing in any cuts,” he said.

Elsewhere, the Canadian dollar rose 1.1 per cent over the week to a seven-month high of C$1.1040 against the dollar after strong growth data increased speculation that the Bank of Canada could raise interest rates.