The dollar was higher, reaching the top end of its recent trading ranges against most major currencies, buoyed by solid stock market performances, dealers said. "Three straight days of gains on Wall Street are keeping the dollar well bid but the US currency has still not broken from recent ranges," said Will Rugg, currency strategist at MMS International. But players are still reluctant to take positions in any meaningful way amid a deteriorating risk climate, dealers said.
"A possible Al-Qaeda link to the bombing in Bali and the deteriorating situation in Brazil have kept risk premia in markets well under-pinned," said Steve Pearson, head of currency strategy at HBOS treasury services. The climate of risk aversion may well be mitigating the positive impact of a firmer stock market on the dollar, he added.
The rising tension in the Brazilian financial market where the central bank hiked rates by 300 basis points is likely to keep the dollar's gains in check, dealers said. Market focus is also shifting to corporate performances with Citibank, General Motors and Intel among others reporting their third quarter earnings, said Michael Klawitter, currency strategist at West LB.
"Euro-dollar remains in a tight trading range and moves in the exchange rate continue to reflect shifts in dollar sentiment rather than EU-12 domestic news," he said. A weak German ZEW index today should therefore have little market impact. Comments from the German government, calling for a European Central Bank rate cut will also likely go unheard, he added.
Corporate developments were behind the euro's rise against sterling. "Euro-sterling has edged higher on the back of rumours that Vodafone will increase its efforts for Vivendi's stake in Cegetel. However, a lasting break above ?0.635 is unlikely ahead of tomorrow's important labour market data," Klawitter said.
The currency implications arise from the possibility that Vodafone is set to pay Vivendi Universal around 7 billion euro for the latter's holding in Cegetel. Although much of this will be equity financed, a sizeable cash component is still likely, Pearson at HBOS explained. "The impact of this transaction looks likely to fade and given our broader view on the euro, short positions look attractive," he added.
The morning's UK inflation data is likely to be a non-event as price pressures are hardly the Bank of England's biggest problem in setting interest rates. The yen was weaker after comments from Standard & Poor's that Japanese banks are unlikely to recover without drastic changes in corporate governance. "These comments indicate that the government as well as the BoJ have to speed up reforms which will increase the near-term pain in the economy and therefore will weigh on the yen," said Klawitter at West LB.//www.ananova.com