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FOREX-Dollar edges higher, profit taking hits euro

Published 11/12/2009, 07:14 AM
Updated 11/12/2009, 07:15 AM

* Dollar edges up, euro pares prior gains

* APEC ministers to call for "market-oriented" forex rates

* Aussie dollar hits 15-month high after local jobs data

By Matthew Foster-Smith

LONDON, Nov 12 (Reuters) - The dollar edged lower on Thursday, struggling with growing calls for Asian currencies to trade more freely -- effectively appreciate -- but supported by profit-taking on recent gains in other currencies like the euro.

Sterling deepened losses on the back of comments from the Bank of England on its quantitative easing programme in the previous session while the euro was damaged by its latest failure to cement a break past $1.50 against the dollar.

The steady pace of dollar selling in recent weeks -- also on the view U.S. interest rates would remain low for some time -- stayed intact market participants said, adding that the intraday dollar rise was little more than a consolidation.

With few major economic data and events scheduled for the European and U.S. sessions, players were focussed on a meeting of Asia-Pacific and other Asian regional issues, including a U.S. state visit to China next week.

The latest draft of a post-meeting communique from APEC leaders called for "market-oriented" exchange rates and interest rates -- effectively an argument for local currencies to appreciate against the dollar.

Some analysts said the focus on Asian currencies was also a factor capping gains in the euro on Thursday.

Pressure on China and other Asian countries to revalue their currencies "could take away some of the upside pressure on the euro," said Marcus Hettinger, currency strategist at Credit Suisse in Zurich.

The euro offered limited reaction to a slight rise in euro zone output, which affirmed the view that Friday data would show the 16-member bloc officially emerging from recession.

At 1101 GMT the dollar index, a gauge of the greenback's performance against six major currencies, was at 75.183, unchanged on the day. It hit a fresh 15-month low of 74.774 on Wednesday. It was flat at 89.80 yen.

The euro was down 0.2 percent at $1.4955 after touching $1.5049 on trading platform EBS on Wednesday.

The Australian dollar also pared gains after hitting a 15-month high of $0.9370 in early trade, though strong Australian jobs data again fuelled bets for a rise in interest rates in December.

CHINA CHANGES

China's central bank, which holds the world's largest foreign exchange reserves stash of more than $2 trillion, on Wednesday said it would consider major currencies in guiding the yuan, suggesting a departure from an effective dollar peg that has been in place for more than a year.

Analysts said the move was Beijing's clearest signal yet that it was close to letting the yuan appreciate after an 18-month hiatus that has frustrated many of its peers.

"The message we draw from the shift in the (Chinese central bank's) carefully chosen words is that trend decline in the dollar will no longer be resisted to the same degree," said Westpac in a research note.

"We expect greater movement on dollar/yuan soon, quite possibly ahead of Obama's meetings with top Chinese officials next week and with a European delegation also arriving in China before year-end," they said.

U.S. President Barack Obama visits China next week, and market participants expect currencies to be discussed. (Editing by Patrick Graham)

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