Korean won soars as government imposes forex regulations
By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar dropped by the most in three weeks against the euro on Monday as renewed investor appetite for equities and other assets undercut safe-haven demand for the greenback.
Strategists said a recovery in overall sentiment despite Friday's weaker-than-expected U.S. retail sales data helped lift Asian and European equities, giving U.S. stock indexes reason to rise more than 1%.
A stronger-than-expected 0.8% monthly rise in April euro-zone industrial production on Monday added to positive sentiment, allowing the beleaguered single currency to extend a rebound.
The euro (CUR_EURUSD 1.2277, +0.0151, +1.2454%) rose to $1.2290, up from $1.2087 in North American trade late Friday, its biggest increase on a closing basis since May 21. The single currency hit a four-year low around $1.19 earlier this month.
The dollar index (DXY 86.34, -1.17, -1.33%) , which measures the greenback against a basket of major currencies, fell to 86.249 from 87.469 on Friday.
The greenback gained against the Japanese yen to buy ¥91.77 (CUR_USDYEN 91.8100, +0.0400, +0.0436%) , up from ¥91.65 on Friday. The yen, like the dollar, tends to benefit from safe-haven flows and to fall when investors show increased willingness to move into riskier assets, including stocks.
"This is the first substantial upside correction in the euro in the better part of two months," wrote economists at Brown Brothers Harriman. "The euro's move above its 20-day moving average puts momentum traders on alert. While the next target comes in near $1.2300, given the extended positioning and the pace of the losses in recent weeks, a short-covering fueled recovery can exceed technical objectives."
On Friday, a stronger-than-expected rise in the University of Michigan's consumer-confidence reading helped kickstart risk appetite, strategists said. Read about Friday's currency markets.
Still, the euro looks likely to weaken against emerging market currencies and growth in the euro zone will be weak compared to many developed economics, according to Pimco.
"The euro will continue to weaken against emerging market currencies, reflecting relative growth dynamics in Europe versus better prospects in emerging market countries, portfolio manager Andrew Balls said in a note released Monday on the fund firm's web site. Read Pimco's note on the euro.
The euro still doesn't look cheap against the U.S. dollar, he said.
"At minimum the euro-zone crisis is likely to deter investors, including government sector investors, from increasing their exposure in the euro-zone and could lead to a reduction in euro exposure," Balls said.
