LONDON (AFX) - The euro remained firm in early trade following another Wall Street slide overnight and ahead of US trade data later, dealers said.
"The flow of bearish equity market news continues, corporate bond markets look vulnerable and the US-Euroland government yield difference has widened to 20 basis points in favour of the euro, indicating that the US will find it increasingly difficult to finance its widening current account," said Hans Redeker, global head of forex research at BNP Paribas. Steve Barrow, currency strategist at Bear Stearns, said the dollar continues to fold and feels the pressure of foreign investor flows "keeping a respectful distance from the fall-out from corporate America". "On current trends, the euro is cruising for a test up to parity with the dollar very soon," he added. The plethora of data releases later today are unlikely to provide the dollar with any support especially first quarter US current account data, said Adam Cole, currency expert at Credit Agricole Indosuez. Meanwhile, the dollar remained under pressure against the yen following encouraging Japanese trade data. The adjusted balance in May, at 0.9 trillion yen takes the balance in the latest three months to its highest level for almost two years and the underlying trend is still very strongly upwards. Japan's May trade surplus came in twice as strong as expected with exports remaining on a healthy track, said BNP Paribas' Redeker. "Widening trade surplus data and the government's inability to present a sufficient reform package has weakened Japan's desire for a weaker yen," he said. "The Koizumi government must fear coming under pressure at the G8 meeting next week," said Redeker. "Accordingly, we do not expect Japan's authorities to intervene in FX markets ahead of the meeting and dollar/yen should remain under pressure." Meanwhile, sterling was off highs slightly ahead of crucial May retail sales figures later this morning.