LONDON: The euro jumped above $1.42 for the first time this year, as rebounding global stock markets persuaded investors to switch away from the safe-haven US currency, dealers said. The euro fell back in lower trading as investors cashed in on profits, with the euro changing hands in late afternoon trading in London at $1.4184 compared to $1.4153 in New York on Friday. The pound was at $1.6461 ($1.6182).
The European single currency also jumped against the Japanese yen from 134.94 yen on Friday to 137.20 yen yesterday. The dollar was up against the yen too, rising to 96.67 yen from 95.29 yen at the end of last week. “The key market driving dynamic remains improving global investor confidence in anticipation of a recovery in the global economy coupled with improving financial market conditions,” economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ said in London.
The euro, which is widely regarded as a higher-risk currency than the dollar, tends to strengthen when investor confidence and risk appetite improve owing to signs of growing economic stability. The dollar therefore fell on easing risk aversion as “global growth expectations are stabilising and the financial crisis appears to be through its worst,” Standard Chartered bank analysts wrote in a note.
General Motors filed for bankruptcy protection, ending an era in US manufacturing and setting a path for the government to take a majority stake in what was once the world’s biggest corporation.
There was also some encouraging data from the US factory sector and a rise in US personal incomes, while in China the manufacturing sector continued to expand boosting hopes of a recovery in commodities prices around the world. But investors remained cautious ahead of a US non-farm payrolls report out later this week. They are looking for clues on possibilities for recovery amid persistent worries over America’s ballooning budget deficit.
Investors are also looking ahead to a meeting on Thursday of European Central Bank (ECB) officials, who are expected to keep the overnight lending rate steady at one percent. The ECB has already said it will buy $85bn worth of covered, or collateralised, bonds, a move which should help boost cash flows in French, German and Spanish markets where such instruments are traded most widely.
The purchase programme is intended to help banks raise funds so that they can then extend credit to households and firms. On Thursday, the ECB will also release its latest staff forecasts for growth and inflation in the 16-nation bloc. A downward revision is likely for growth, owing to a disastrous first quarter in its leading economies.
The Bank of England is to meet on the same day and is expected to keep its record low interest rates unchanged at 0.5 percent. Ahead of the decision, sterling was extending its recent strong run against the dollar. On the London Bullion Market, the price of gold jumped to $981.75 an ounce from $975 an ounce on Friday.
