By Deborah Levine
The dollar fell versus the euro on Thursday as Europe's single
currency got relief from China's denial of news reports that it was
considering the sale of some of its holding of euro-denominated
bonds.
The euro (CUR_EURUSD) rose to $1.2318, up from $1.2197 in late
North American trade Wednesday. In European trading hours, it rose
above $1.23. The shared currency touched a four-year low near
$1.2144 on May 19.
The dollar index (DXY), which tracks the U.S. unit against a
basket of six major currencies, fell to 86.514 from 87.159 on
Wednesday.
The index has risen from 81.866 on April 30, on pace for its
sixth monthly gain.
The euro had slipped below $1.22 late Wednesday after the
Financial Times said China was reviewing its holdings of European
bonds.
But on Thursday, the China State Administration of Foreign
Exchange, or SAFE, said the reports were "groundless."
In a statement on its website, the agency said it supports
measures the European Union and the International Monetary Fund
have undertaken to ensure financial stability within the euro zone,
which it described as "one of the most important investment
markets."
Among the takeaways for investors is that unofficial reports
about Chinese policy efforts should be taken with a grain of
salt.
"China does not leak," said Marc Chandler, a currency strategist
at Brown Brothers Harriman. Also, "this does not mean that they do
not monitor developments that impact their investment."
The swing late Wednesday and in the Asian and European session
also indicate it's more a "panic" of short-term traders, not
medium- and long-term investors who "typically react gradually to
developments," Chandler wrote in a note.
Against the Japanese yen, the dollar traded at (CUR_USDYEN)
¥90.82, up from ¥90.01.
The euro traded at ¥111.82, up from ¥109.74
(CUR_EURYEN). The yen and the dollar tend to rise when investors
want a safer, albeit lower-yielding, currency and to fall when risk
appetite is on the rise.
U.S. stocks rallied, with the S&P 500 Index (SPX) gaining
2.3%. That followed advanced in European and Asian markets.
The euro set a low of $1.2155 in Asian trade, failing to test
the four-year low and setting the stage for a rebound, analysts
said. But they also warned that upside was limited.
The dollar crept a little higher after the Labor Department said
the number of Americans filing first-time claims for unemployment
benefits fell 14,000 to 460,000 in the latest week.
That was tempered by a separately report saying the economy grew
at a revised 3.0% pace in the first quarter, slower than initially
reported.
"The data will tend to weigh slightly on the very positive start
to the risk trade today," said Alan Ruskin, head of currency
strategy at RBS. "The market is likely to need clear evidence that
the U.S real economy has been able to weather the euro-inspired
storm."
Monthly results
For May -- with the last trading day of the month on Friday due
to the Memorial Day holiday -- the dollar index is on pace for the
biggest gain since October 2008.
It's up from 81.866 on April 30, extending its advance to a
sixth straight month, as debt-related problems in peripheral
members of the euro-zone, protests to cost-cutting efforts and
other actions taken by officials are expected to weigh heavily on
growth in the region.
The euro is on track for its biggest monthly drop since January
2009.
"In order for the currency pair to sustain its gains and to
turnaround permanently, we need to see action by policymakers,"
said Kathy Lien, director of currency research at GFT.
Still, some of the options that would help the euro recover in
the near term -- including possibly lower interest rates or
coordinated injections of liquidity -- are all bearish for the euro
longer term, she said.
In May, the dollar has slipped from ¥94.01, likely to be
the biggest slide since November.
Among the more popular exchange-traded funds, PowerShares DB US
Dollar Bearish Fund (UDN) lost 6.8% in May while PowerShares DB US
Dollar Bullish Fund (UUP) returned 6.3%.
CurrencyShares Euro Trust (FXE) has fallen 8.4% this month.
CurrencyShares Japanese Yen Trust (FXY) is up 4.4% so far in
May.