Dollar gives ground against euro, other currencies as stocks, commodities gain

By AP
Wednesday, July 7, 2010

Dollar slips versus riskier currencies

NEW YORK — The dollar slipped Wednesday as currencies that traders consider riskier rose along with stocks and commodities.

The euro rose to $1.2650 in late afternoon trading in New York from $1.2620 Tuesday afternoon. The British pound gained to $1.5205 from $1.5149, while the dollar slipped to 87.40 Japanese yen from 87.43 yen.

The currency shared by 16 European countries touched $1.2662 on Tuesday, its strongest level since May 21, as troubled Spain successfully sold 6 billion euros in 10-year bonds. Fear of surging public debt levels and slowing economic growth have dragged on the euro this year.

Against a basket of six major currencies, the dollar has slipped about 5 percent since a 15-month high hit on June 7.

Investors tend to use the dollar as a safe haven, meaning it often falls along Treasury securities when stocks, commodities and emerging-market currencies rise.

“The general feeling still seems to be one of guarded optimism regarding the overall global economic outlook and this has fueled some risk appetite,” said IG Markets analyst Dan Cook in a research note. “As long as the negative headlines which plagued the euro area in May are held at bay … the upward momentum stills seems to favor the euro.”

Still, investors remain cautious because of worries about the U.S. economy slowing in the second half of this year. Apprehension about results of “stress tests” on European banks that are supposed to be released later this month are also restraining dollar losses, said Joe Manimbo, currency market analyst at Travelex Global Business Payments.

The EU has promised to publish bank stress tests in a bid to convince markets that the financial sector is healthier than some fear. Those results could come on July 23.

Despite those worries, the euro and other currencies appeared to be gaining alongside stocks, Manimbo said. The Dow Jones industrial average gained 274 points, or 2.8 percent, on Wednesday. The Dow ended higher Tuesday after declining for seven straight days.

In other trading, the dollar dropped to 1.0514 Swiss francs from 1.0594 francs and to 1.0490 Canadian dollars from 1.0557 Canadian dollars. The U.S. currency also fell versus the Australian and New Zealand dollars and the Brazilian real, all countries that are major exporters of commodities.

Traders tend to buy commodities when they feel reassured of the economy’s health, and currencies linked to commodity exporters also benefit then. A growing economy uses more commodities.

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