The dollar rose on Monday in holiday-thinned trade, adding to last week's gains, as statements by some euro zone finance ministers that they can live with the euro's current exchange rate had little impact on the market.
In an official statement, the ministers, along with officials from the European Central Bank, said in Brussels they were concerned about excessive volatility in exchange rates.
They also restated their basic position that the euro's value should be in line with medium and long-term economic fundamentals and that monetary policy continues to maintain price stability.
With US financial markets closed in honour of civil rights leader Martin Luther King Jr., investors had a chance to survey the landscape after last week's dollar rally, the best since March 2001.
Last week, euro zone policy-makers let loose a barrage of cautionary comments in a posturing move aimed at trying to temper the euro's speedy rise toward the $1.30 mark. Along with some good US economic data, investors took an opportunity to buy back the dollar and book some profitable trades.
On the way into the Brussels meeting, several policy-makers said they were satisfied with the euro's current levels around $1.2350. Last Monday, the euro hit a record high $1.2898 and looked to be heading even higher.
"Usually central bank action starts with posturing. If you get a sharp move for the euro back above $1.2800/50, the posturing would become more profound. What would be the next move? Moving (interest) rates? If we stay below $1.2450/1.25 I think it puts these guys in a comfort zone," said Ken Agostino, senior dealer at GAIN Capital in Warren, New Jersey.
In late New York trade, the euro bought $1.2356 according to Reuters data, down 0.22 percent on the day but up from the session low $1.2335. A week ago the euro hit a record high of $1.2898 but rapidly fell back after European policy-makers began expressing concern.
On Friday, the dollar gained ground after the US Treasury released data showing foreigners were bigger-than-expected investors in US assets in November. In addition, speculators were seen trimming their holdings of long-euro currency futures contracts for a fourth consecutive weak.
"I don't think people want to go into the G7 meeting long US dollars. A good portion of this drop (in the euro versus the dollar) is due to euro-longs liquidating," said Marc Chandler, chief currency strategist at HSBC in New York.
The dollar rose to 107.21 yen, a gain of 0.50 percent on the day. Even as the yen weakened, investors were on guard for official Japanese yen-selling intervention.
Japan saw an upgraded assessment of its economy, but the monthly report issued by the Cabinet Office also said the yen's recent strength could be a threat to business conditions.
Japan's top financial diplomat, Zembei Mizoguchi, reiterated Tokyo's stance that foreign exchange markets should be stable.
The Australian dollar fell 1.07 percent versus the greenback to US $0.7551. Sterling dropped 0.81 percent to $1.7829. The dollar rose 0.22 percent to 1.2694 Swiss francs. The euro firmed to 132.51 yen.
Dealers said it was too early to say the euro's up-trend had ended but Friday's data showing net foreign purchases of US assets tripled to $87.6 billion in November from the previous month gave added support to the greenback.
On his way into Monday's informal euro zone finance minister meeting and ahead of Tuesday's full Ecofin gathering, Austrian Finance Minister Karl-Heinz Grasser said: "I think we can live with the current exchange rate."
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