SINGAPORE: The euro rose on profit-taking on Friday after slipping to an eight-month low the previous day, but its gains could prove fleeting with market players left unimpressed by a G20 pledge to preserve financial stability.
The euro climbed by as much as 0.8 percent earlier after Jiji news agency reported that Group of 20 officials were working toward an emergency statement, stirring hopes for action to soothe jitters over the euro zone's debt crisis.
The G20 communique, however, contained no surprises and market players said they were sceptical that the euro, or risk currencies like the Australian dollar, would enjoy a sustained bounce.
"There is nothing new, nothing substantial where we can grasp and say 'this is good, now we can put on some risk again.' I don't think it changes the bigger picture," said Jesper Bargmann, Asia head of G11 spot FX for RBS in Singapore.
Profit-taking of short-term, short-risk positions have given a lift to the euro and risk currencies such as the Australian dollar so far on Friday, but those gains could prove short-lived, he said.
"We are seeing some profit-taking but we're nowhere near anything that looks like a real recovery," he said. "If we see global stock markets start to slip again I think we will see kiwi, Australian dollar, euro/dollar sell-off again."
Finance ministers and central bankers from the Group of 20 economies pledged on Thursday to prevent Europe's debt crisis from undermining banks and financial markets, and said the euro zone's rescue fund would be bolstered, adding that they would take all steps needed to calm the stresses wracking the global financial system.
In addition to profit-taking, traders said the euro and the Australian dollar's rise gained momentum due to stop-loss bids.
The euro rose 0.4 percent from late US trading on Thursday to $1.3521 , having bounced off an eight-month low of $1.3384 hit the previous day on trading platform EBS.
The Australian dollar climbed 0.5 percent to $0.9797 . On Thursday, it had slid to as low as $0.9692, its lowest in nearly 10 months.
"CLEAR DISAPPOINTMENT"
The US dollar and the yen had rallied on Thursday as investors succumbed to fears and bailed out of crowded trades in commodities and growth-leveraged currencies.
Dealers said some investors were rushing to take profits where they could to cover losses elsewhere, while others just decided to take their money home to preserve capital.
Fears of a global slowdown and a loss of confidence in policy makers drove the panic, which risks becoming self-fulfilling if businesses and consumers take fright and stop spending.
Todd Elmer, currency strategist for Citi in Singapore, said the outcome of the G20 meeting was a "clear disappointment".
"I think there was some expectation in the market that they would signal concrete action or immediate coordinated steps but that language of their statement sticks very much to what we've heard from them in the past," Elmer said.
"I wouldn't be surprised to see the slight bounce we have seen in the euro and other risky assets this morning start to unwind," he added.
The yen and the dollar dipped against other major currencies, taking a breather after having rallied the previous day.
The dollar index, which measures the dollar's value against a basket of currencies, stood at 78.207 , having backed off a seven-month high of 78.798 reached a day ago.
Thursday's rally in the dollar index had stalled just above the 200-week moving average at 78.758, and a clear breach of that resistance could set the dollar index up for more gains.
The yen pulled back from a 10-year high struck versus the euro the previous day. The euro rose 0.4 percent against the yen to 103.09 yen , having bounced back from Thursday's trough of 102.211 yen, euro/yen's lowest in more than 10 years.
Copyright Reuters, 2011
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