MW: Dollar mostly gains as risk appetite fades; data, G-20 in focus
British pound marches on to a 19-month high against euro
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- The dollar remained higher on most major rivals Monday and extended a small gain against the euro as Wall Street got off to a fitful start in the wake of data on U.S. personal incomes and spending for May.
The dollar index (DXY 85.54, +0.23, +0.27%) , which tracks the U.S. unit against six major counterparts, was at 85.462, compared to 85.342 late Friday.
The euro (CUR_EURUSD 1.2310, -0.0061, -0.4931%) changed hands at $1.2337, recovering after having slipped to a low at $1.2324 but down from $1.2380 in North American trading late Friday.
Against the Japanese yen, the dollar (CUR_USDYEN) was little changed at ¥89.24 in recent action.
The Commerce Department said U.S. consumer spending rose 0.3% in May, while the savings rate rose to its highest level in eight months. Read about the spending and income data.
U.S. stocks opened flat to modestly lower, signaling a lack of risk appetite, which tends to benefit the dollar as investors turn to perceived safe havens.
Currencies saw relatively subdued action to start the week, on the heels of leaders of the Group of 20 industrial and emerging economies shifting their emphasis to deficit reduction during a weekend meeting in Toronto. A modest uptick in risk appetite saw the dollar post a mixed performance against more risk-oriented commodity currencies, while the euro lost ground.
The G-20 leaders reached an agreement on common goals for deficit and debt reduction Sunday, but the statement didn't directly address currencies and exchange rates. See full story on G-20 meeting.
"The euro ... appears to be bearing the strain at this early stage of the week in response to a [G-20] compromise with investors having to determine which flag they want to ride behind," said Andrew Wilkinson, market strategist at Interactive Brokers in Greenwich, Conn.
The G-20 statement, while setting goals for deficit and debt reduction, said that each nation should stick to existing stimulus measures but that each government must act to safeguard its economic recovery, he noted.
"The consensus view is that the United States will emerge harder on account of willingness to stick by its habitual stimulus plans. Europe on the other hand faces slower recovery chances as it chooses to straighten out a fiscal mess that if left unchecked would result in the market doing its dirty laundry for it," Wilkinson said, in emailed comments.
The high-yielding Australian dollar (CUR_AUDUSD 0.8715, -0.0026, -0.2975%) edged off an earlier gain in Asian trading, changing hands at 87.31 U.S. cents, down 0.1% on the day. The greenback was off 0.1% versus the Canadian dollar (CUR_USDCAD 1.0361, +0.0011, +0.1063%) at C$1.0351.
"The initial reaction in the currency markets [to the G-20 meeting] was mildly pro-risk with euro and cable (British pound versus the dollar) rising at the start of the Asian open," said Boris Schlossberg, director of currency research at GFT.
However, by early in the European session, much of investors' appetite for more volatile currencies waned and the euro dropped, with this week's outlook to be largely determined by U.S. and European data.
"If the news continues to surprise to the downside, safe-haven flows will likely resume with U.S. dollar and yen rallying further as enthusiasm for the risk trade fades along with the hopes to contain deficit spending," Schlossberg said in a note to clients.
Meanwhile, the British pound (CUR_GBPUSD 1.5077, +0.0024, +0.1594%) was little changed at $1.5061.
The euro, however, fell to 81.79 pence versus the pound, according to trading platform EBS, setting a 19-month low.
Analysts said investors who are bulling on sterling continue to reap the impact of last week's tight emergency budget announced the recently installed U.K. coalition government led by Prime Minister David Cameron.
