By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar edged higher versus most major rivals Monday, with the euro giving up early gains as investors waited to see what sort of reception Italy’s new technocratic government, led by economist Mario Monti, receives at an auction of five-year government bonds.
The euro EURUSD -0.81% slipped to $1.3705 versus the U.S. dollar, from $1.3745 in North American trade late Friday.
The euro bounced back from a mid-week rout last week on hopes that a Monti-led government would be able to implement austerity measures and economic reforms. The changes were demanded by Italy’s European partners and designed to reassure investors that the country can rein in its debt load.
The sale Monday morning “will tell us something about market sentiment. ... The risk is that even if the sense of crisis has faded marginally, restoring confidence to the point where private-sector investors find the yields on BTPs [Italian government bonds] offset the risks will take a lot of time,” said Kit Juckes, head of foreign exchange at Societe Generale.
The yield on five-year Italian government bonds was seen near 6.35% in recent trade, according to FactSet Research, after spiking to nearly 7.5% last week.
The dollar index DXY +0.35% , which tracks the U.S. unit against a basket of six major rivals, rose to 77.100 from 76.947.
Reduced risk
“While the U.S. economic data has improved, the Greek and Italian political developments have reduced a lot of the tail risk in the euro and suggest short positioning may consequently be reduced,” wrote strategists at Lloyds Bank in London.
The dollar tends to rise on safe-haven flows as risk aversion increases, while falling when investors show more risk appetite.
Although the Japanese yen and Swiss franc appear to be better positioned to serve as long-term funding currencies in carry trades, long dollar positioning suggests more short-term downside for the dollar in the absence of more negative global news, they said.
The British pound GBPUSD -0.91% traded at $1.5952, down from $1.6058.
The dollar slipped to 76.93 yen USDJPY -0.53% from ÂĄ77.17 on Friday.
William L. Watts is a reporter for MarketWatch in Frankfurt.
