NEW YORK: The dollar remained near its highest level in nearly a month against the euro on Monday as investors continued to trade on the euphoria of a recovering US labor market that was seen as making it less likely the Federal Reserve would supply further monetary stimulus.
Earlier in the global session, the dollar touched its highest in nearly 7 weeks against a basket of currencies and analysts expect it to be supported if data show more signs of a sustained US economic recovery.
That's in contrast with the euro zone, where the single currency is expected to struggle in the coming weeks as relief at Greece's debt restructuring gives way to concerns over euro zone growth and risk of contagion. Traders said investors were looking to sell the euro into a bounce.
But despite Friday's good news of a solid gain in the U.S jobs market, investors were not taking large dollar positions ahead of a Federal Reserve policy meeting on Tuesday, waiting for clues as to the central bank's thinking on the US economy.
"The market is focused a little more on what looks like an improving US economy and how that will translate to Fed policy going forward," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
Though no one is expecting any surprise from the Fed at Tuesday's meeting, "if the positive data trend continues that would certainly prompt the Federal Reserve to adjust the outlook for eventual normalization of policy."
The euro was little changed at $1.3113 as the New York session opened, having earlier dipped to its lowest level since Feb. 16. Stops were cited at $1.3150 with option expiries at $1.3100 likely to sway trade in the near term.
One trader said a close below $1.3080 could prompt some hedge funds to increase short euro positions. Below there further chart support stood around $1.3055, the 50 percent retracement of its January to February rally.
The dollar index rose to 80.132, its highest since Jan. 25, before slipping back to 79.869. The dollar index rallied sharply on Friday after US jobs data showed employers added more than 200,000 workers for a third straight month in February, a sign the recovery was gathering pace.
"Less QE (quantitative easing) in the US is positive for the dollar," said RBS currency strategist Paul Robson in London. "In Europe the weakest data is in the countries with the weakest fiscal position, which is worrying and it's still a case of selling euros on any rallies."
RBS expects the euro to fall to $1.26 over the next two to three months.
Some analysts were sceptical whether a recovery in the US labor market would translate into broad-based growth for the world's largest economy. Growth in the US is expected to slow this quarter from the fourth quarter's 3 percent annual pace as consumer spending flatlined and exports remained sluggish.
"US growth forecasts are being scaled back even as the labour market picks up and that will weigh on the US dollar," said George Saravelos, G-10 FX strategist at Deutsche Bank.
EURO STRUGGLES
The euro struggled against the yen and the dollar as traders switched their focus from Greece to the next peripheral euro zone country that may have to restructure its debt obligation.
On Friday, Greece took final steps to restructure its debt, using legislation to force remaining private creditors to swap Greek debt for new bonds worth considerably less.
While that paved the way for a fresh bailout for Greece, there was little sign of relief in Spanish and Italian debt markets, where sovereign bond yields rose. All these worries are likely to see the euro ease towards $1.30 and even lower in coming weeks.
As well as the US Federal Reserve meeting, another focal point for the market this week will be a policy decision by the Bank of Japan, also due on Tuesday.
The BOJ's monetary policy has been in the spotlight since its surprise easing in February. Most traders expected the BOJ to refrain from further easing though some saw a risk of action that would spark a sell-off in the yen.
The dollar slipped 0.3 percent against the yen to 82.14 yen as investors bet that this year's 6.8 percent advance is too far, too fast, particularly after it touched a near 11-month high on Friday. US bond yields rose on the upbeat jobs data, boosting the dollar's appeal versus the low-yielding yen.
The Australian dollar was down 0.7 percent at $1.0493 after China reported a $31.5 billion trade deficit, confounding forecasts of a $5 billion shortfall and raising concerns about the outlook for the world's second largest economy. The session trough for the Australian dollar was the lowest since January 25.
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