LONDON (AFX) - The euro recovered from the day's lows in midday trade after further emerging market problems put pressure on the dollar, dealers said.
Cautious optimism over Argentina appeared to dissipate amid fears that the opposition may attempt to scupper the government's spending cut plans. The opposition Justicialist (Peronist) Party warned yesterday evening that it would use the quorum rule to prevent today's debate in the senate on the government's austerity package CSFB strategist Peter Von Maydell said potential delays to the vote on Argentina's spending cuts led to another sell off in emerging markets, which had a direct negative impact on the dollar and aided euro buying.
Von Maydell said the market will be looking for further events in Latin America to provide direction.
He also said while US treasury secretary Paul O'Neill's interview with Financial Times reconfirms a "strong dollar" view, the market persists in reading, "all sorts of hidden messages from the US that there isn't actually a strong dollar policy."
Von Maydell also said other politicians -- "notably President George Bush" -- have diluted O'Neill's message by saying something different.
O'Neill was upbeat on the outlook for the US economy, saying there is potential for growth to exceed 3 pct next year as well-run companies weather the economic slowdown successfully.
He also said US productivity justifies the strong dollar, agreeing that the structural weaknesses of the European economy are reflected in the euro's current value.
The yen rose on the general dollar weakness, although it was also supported by improvements in neighbouring currencies, dealers said. Von Maydell said a rally in Asian currencies has helped the yen marginally.
He noted that the Indonesian currency has been sharply stronger after a change in government this week.
"It helps to have neighbouring trade partners doing better," he said.
Sterling was higher against the dollar, caught up in the positive euro-dollar move, dealers said. A bleak Confederation of British Industry did not have much impact as the market had been braced for a weaker reading, Adam Chester, economist at Halifax said.
CBI said optimism over exports for the year ahead has fallen to its lowest level since October 1998 amid worries over weak global demand. The survey also highlights the deteriorating conditions facing UK manufacturers, especially exporters. Business confidence continued to fall markedly, while both domestic and export orders as well as output have declined over the past four months.
However, the FTSE index breach of its March 22 lows may be a likely source for sterling weakness ahead, Chester said.