Tokyo: The dollar edged up against the euro and a basket of currencies after choppy trade on Friday as investors remained deeply concerned about global recession despite a sharp US share rebound, and sought the safety of the world’s most liquid currency.
Earlier in the day, the dollar had dropped against the euro and the yen on selling from short-term speculative accounts, but worries that worldwide efforts to rescue troubled banks will not stave off a global recession helped the dollar erase losses.
According to the traders, the price movements remained extremely volatile with poor liquidity, making it hard to find the dollar’s near term direction.
The yen, on the other hand, fell against currencies such as the euro and the Australian dollar as Tokyo shares rebounded following a late surge in US stocks, easing investor risk aversion in certain areas.
“The focus of the market is now shifting gradually to the weakness of the real economy,” said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities.
“Market players are watching not only the performance of banks but also companies that feel the direct impact of the slowing economy,” Shioiri said.
“The troubled housing and credit markets are hurting the broader US economy, requiring a policy response that includes direct outreach to homeowners,” Boston Federal Reserve President Eric Rosengren said.
Rosengren’s comments came after more dismal US data on housing and business activity the previous day which added to fears about a more marked slowdown of the economy.
The euro edged down 0.1% from late Thursday New York trade at $1.3445 after rising as much as 0.5% earlier in the day. The euro stayed above a 1 year low of $1.3257 hit a week ago.
“The dollar had gained broadly over the last few months, partly because nervous investors shifted funds to highly liquid dollar instruments as the global financial crisis intensified,” analysts said.
“The safety buying of the dollar may have peaked for now,” said Hideki Amikura, deputy general manager of forex at Nomura Trust Bank.
The dollar index, which measures the dollar’s value against a basket of six major currencies, edged up 0.1% to $82.363, after falling about 0.2% earlier. The dollar index hit a peak of $83.191 a week ago, the highest since June 2007.
Japan’s Nikkei share average tracked the rise in US stocks, gaining 1.5% a day after its worst fall since the 1987 crash.
Gains in Tokyo equities prompted investors to step back towards carry trades, in which the low-yielding yen is used to fund investment in higher-yielding currencies and asset.
Further falls in interbank loan rates amid more drastic steps by central banks to provide funds and to improve bank balance sheets have also provided relief to investors and a boost to the US stock market, Amikura at Nomura Trust Bank said.
Against the yen, the euro was little changed at ¥136.62 having moved in a choppy trade between an earlier low of ¥136.27 and the day’s high as ¥137.42 hit on trading platform EBS.
The dollar was also steady against the yen at ¥101.51 after rebounding as high as ¥101.84 from earlier low of ¥101.12 on EBS.