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FOREX-Dollar off year's lows but sentiment bearish

Published 06/02/2009, 05:57 AM
Updated 06/02/2009, 06:00 AM

* Dollar steadies after previous day's sharp falls

* Euro down 0.3 percent at $1.4120

* Aussie dented after RBA says scope for further easing

* Euro zone unemployment rate 9.2 percent in April

(Adds quotes, updates prices)

By Tamawa Desai

LONDON, June 2 (Reuters) - The dollar steadied on Tuesday after hitting its lowest this year versus a basket of currencies the previous day, but underlying sentiment for the U.S. currency remained bearish due to a view that the global economy is stabilising.

Commodity-linked currencies such as the Australian dollar, which hit an eight-month peak against the U.S. dollar, also eased, although analysts expect the aussie's uptrend to remain intact as commodity prices rise.

A rise in risk-taking appetite, prompted by recent sharp gains in share prices, took a pause as European stocks fell and U.S. stock futures were also in negative territory.

"The dollar is still on unstable ground, although we are seeing a degree of profit-taking today," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. "Signs of improvement in the economy as well as improving financial conditions continue to weigh on the dollar."

By 0930 GMT, the dollar index was up 0.2 percent at 79.3881 after hitting its lowest since mid-December at 78.586.

The euro was down 0.2 percent at $1.4120, having rallied to $1.4246 on trading platform EBS on Monday, its strongest since late December.

The markets shrugged off data showing euro zone unemployment rose to 9.2 percent in April, the highest since September 1999. This was above forecasts of 9.1 percent in April and an actual rate of 8.9 percent in March.

The dollar was flat at 96.48 yen, after rising as high as 96.81 yen the previous day.

Currencies perceived as higher risk dipped from multi-month highs against the dollar as traders said their recent gains had been rapid and temporary profit-taking may be in store.

The Australian dollar slipped after the Reserve Bank of Australia held interest rates at a record low of 3 percent on Tuesday, but said there was scope to ease further if needed.

The Australian dollar fell 0.2 percent at $0.8077 after an eight-month high of $0.8154 on Monday.

Analysts noted the dollar's recent fall has coincided with money shifting out of U.S. Treasuries and into emerging markets equities and other assets.

"It is not so much a flight from the dollar as it seems, but an expressed preference for assets with greater yield-enhancement potential," said Neil Mellor, currency strategist at Bank of New York Mellon.

Sterling was down 0.5 percent at $1.6360, off a seven-month high of $1.6497 on Monday. The pound also lost ground after news the Abu Dhabi state-owned International Petroleum Investment Company sold about 3.5 billion pounds of shares in UK bank Barclays.

U.S. data on Monday bolstered a view that the worst of the global recession may be over. The May ISM index for factory activity posted its highest reading since September and construction spending in April saw its biggest increase in eight months.

Generally upbeat manufacturing reports from the euro zone, Britain and China added to that optimism.

The market will keep a close eye on policy announcements from the European Central Bank and the Bank of England on Thursday. Both are expected to hold interest rates steady, and the ECB is set to give details of its plan to purchase assets.

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