By Myra P. Saefong and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) — The euro climbed Monday against the U.S. dollar and the Japanese yen, finding support from growing tensions between Japan and China over disputed islands as the shared currency extended Federal Reserve-inspired gains from last week.
“If there are doubts about Japan’s economy because of repercussions from the disputes with China, then we are seeing this already in yen selling into the euro, and yen selling into dollars,” said Richard Hastings, a macro strategist at Global Hunter Securities. “But the bigger move is the euro-yen trade which is substantial enough to push the euro higher against the dollar.”
The euro EURUSD +0.02% fetched $1.3141 in recent action, up from $1.3121 in late trading Friday. It traded as low as $1.3082 earlier.
The ICE dollar index DXY +0.09% , which measures the U.S. unit against a basket of six major currencies, slipped back to 78.830, from 78.864 in late U.S. trading on Friday. It’s trading at its lowest level since late April, according to FactSet.
The euro EURJPY +0.41% , meanwhile, rallied against the Japanese yen, buying ÂĄ103.57 versus ÂĄ102.85 late Friday. Japanese equities markets were closed Monday for a public holiday. Read about trading in Asian markets.
The dollar’s weakness follows the U.S. Fed’s decision on Thursday to launch a third round of bond purchases. Additional stimulus, particularly quantitative easing, is seen as potentially negative for the greenback.
“QE3 ... makes the dollar slightly less attractive, so the euro — far from perfect — in this situation gets the best piece of cake,” said Hastings. “It might not last, and too sharp a move could very likely soon result in reversal trades.”
For now, however, the focus appears to be on a disagreement between China and Japan.
Analysts said the dispute between China and Japan over islets in the East China Sea — along with other geopolitical concerns, including Iran-Israel tensions and anti-austerity protests in Portugal — had the potential to check investors’s appetite for risk in the near term.
“Anyway you slice, the world is not a safe place at the moment and any one of these tinderboxes can explode into something serious,” said Brad Bechtel, head of sales at Faros Trading in Stamford, Conn.
Against the yen, the U.S. dollar USDJPY +0.43% bought ÂĄ78.79 from ÂĄ78.39 late Friday.
Among other currencies, the British pound GBPUSD +0.23% traded at $1.6241, from $1.6229.
The Australian dollar AUDUSD -0.54% traded at $1.0491, down from $1.0554 in late trading last week.
Myra Saefong is a MarketWatch reporter based in San Francisco.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Sarah Turner in Sydney contributed to this report.
