By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The dollar eked out gains versus major rivals Monday as growing tensions between Japan and China over disputed islands triggered a light round of profit-taking on last week’s central-bank-inspired gains by the euro and other risk-oriented currencies.
The ICE dollar index DXY +0.03% , which measures the U.S. unit against a basket of six major currencies, rose to 78.920, up a shade from 78.864 in late U.S. trading on Friday. The index traded as low as 78.730 in earlier action, its weakest level since May.
The dollar “has regained some composure after last week’s rout, but the bounce is modest compared with last week’s (2.1%) selloff, in an overnight session devoid of significant news,” said Adam Cole, currency strategist at Royal Bank of Canada in London.
The dollar’s modest bounce tracks a retracement lower by stock-index futures after last week’s move by the Federal Reserve and other developments triggered a global rally in equities and sent the dollar skidding. Read: Stock futures retrace Fed gains amid Asia worries .
Analysts said a 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’ 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.
Last Thursday’s decision by the Federal Reserve to buy more bonds boosted demand for assets on the riskier end of the asset spectrum. The dollar has been traditionally viewed as a safe-haven asset.
Against the Japanese currency USDJPY +0.5870% , the dollar bought 78.42 yen, little changed from 78.39 yen at the end of last week. Japanese markets were closed Monday for a public holiday.
The euro EURUSD +0.2934% last week hit a four-month high above $1.31. The shared currency fetched $1.3097 in recent action, down from $1.3121 in late trading at the end of last week.
The British pound GBPUSD +0.2343% traded at $1.6222, little changed from $1.6229.
The Australian dollar AUDUSD -0.3458% traded at $1.0510, down from $1.0554 in late trading last week.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
Sarah Turner is MarketWatch's bureau chief in Sydney.
