LONDON—The euro recovered against the dollar during European trading hours Friday as panic-selling at the start of the session eased and the selloff in equities faded.
But with the yen inching ever closer to all-time highs against the dollar throughout the European morning, it was clear that traders were still extremely wary.
At the start of the session, they had eyed a heavy selloff in global equity markets, and in banking stocks in particular, and fled to the safety of the dollar and the Swiss franc.
At one point, shares in Deutsche Bank AG were more than 6% lower. They later picked up to trade 4.3% lower on the day. Société Générale SA traded as much as 5.1% lower before paring losses to trade down 3.9%.
Fears also intensified about the health of Swiss banks after it emerged that the Swiss National Bank had tapped the Fed's liquidity swap line to the tune of $200 million.
However, it later emerged that the funds had been redeemed. UBS AG and Credit Suisse denied that they had requested to use the facility.
Talk that the European Central Bank was checking prices of Italian government bonds also helped stem the selloff in stocks and encouraged traders to pull out of the dollar and buy the euro and sterling.
"The market is taking its cues from what risk proxies are doing. Stock futures initially came off and then bounced," said Adam Cole, chief currency strategist at RBC Capital Markets.
The euro rallied to as high as $1.4345 against the dollar, having traded as low as $1.4259, before running out of steam. Meanwhile, the pound shrugged off a mixed bag of July public finances data and rose to a high of $1.6536 against the dollar.
After yesterday's raft of U.S. data that sent markets into a tailspin, currency traders will be hoping for a quieter end to the week. Apart from Federal Reserve members William Dudley and Sandra Pianalto speaking on the economic outlook at 8:30 a.m. ET and 1:45 pm. respectively, there is no data scheduled.
The euro was recently trading at $1.4299 against the dollar, compared with $1.4333 late Monday in New York. The dollar was at ¥76.50, compared with ¥76.58, while the euro was at ¥109.37, compared with ¥109.75. The pound was trading at $1.6495 against the dollar, compared with $1.6518 late Monday in New York.
The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 74.303 compared with 73.674 late Monday in New York.
