Tags: Dollar | Strengthens | Egypt | Mubarak | resigns | currency | us

Dollar Strengthens Against Most Peers as Egypt’s Mubarak Resigns

Friday, 11 Feb 2011 01:02 PM

The U.S. dollar strengthened against other currencies on Friday after briefly losing ground on news that Egyptian President Hosni Mubarak stepped down, with the greenback's appeal expected to continue given technical factors weighing on the euro.

The euro hit a three-week low, and as it failed twice to break the $1.35 level, this put even more focus on the downside.

The euro temporarily pared losses after Egyptian President Hosni Mubarak stepped down and handed power over to the Supreme Council of the Armed Forces.

"It was a knee-jerk reaction and it didn't last because there are bigger things driving the euro right now," said Brian Dolan, chief currency strategist, at Forex.com in Bedminster, New Jersey.

"Egypt is now seen as a regional political drama and the market seems to think the risk of a fundamentalist takeover there is overblown. But the concerns most heavily weighing on the euro — the ongoing debt crisis — are still there, and for now, the downside is still in play," he said.

Win Thin, global head of emerging markets strategy, at Brown Brothers Harriman in New York, said there are still more questions than answers with regard to Egypt's fate and so investors must be prepared for ongoing volatility.

"Will the protesters trust the military and will it be able to deliver on official promises to open up the country to greater democracy and freedoms?" he said. "We are hopeful, but if the protesters continue to push for more immediate relief, will the military allow them to continue or will it crack down?"

The dollar has smartly benefited from a spate of U.S. economic data reflecting a recovery well underway and most strategists are looking for more outperformance on the dollar.

In early afternoon New York trading, the euro fell 0.4 percent to trade at $1.3532, after earlier hitting $1.3497 — its lowest since January 21. Key support for the euro lies at $1.3500, a point that traders cited as an options barrier, with reports of strong bids ahead of that level.

Technical analysts said if the pair closes below the euro's 100-day moving average at $1.3542, it would be the first time since January 17. As a result, the single euro zone currency could see further downside.

The ICE Futures' dollar index .DXY, which measures the greenback's performance against a basket of currencies, was up 0.3 percent at 78.508.

Traders said the European Central Bank bought Portuguese bonds after yields on the country's debt hit euro-era highs. The latest spike in yields has sparked fresh concerns about funding costs in peripheral euro zone economies.

Bond yields have also been driving the price in euro/dollar in favor of the greenback, with spreads between two-year U.S. Treasuries and German Bunds narrowing, said Andrew Busch, global currency strategist at BMO Capital Markets in Chicago.

He said the two-year U.S. Treasury/Bund spread peaked in late January at around 89 basis points, but has since narrowed to 60 basis points or less, describing this as a big deal.

The dollar's outperformance against the yen has been stronger than the euro. The greenback, which gained versus the yen for eight straight sessions, is on track for a weekly gain of 1.6 percent, its best performance in more than a month.

The dollar touched its highest level in a month at 83.68 yen, and was last up 0.3 percent at 83.52 yen, boosted by the rising trend in U.S. Treasury yields.

The dollar also made headway against the Swiss franc, rising to a one-month high at 0.9750 on demand from a Swiss bank. The franc was further undermined on weaker-than-expected Swiss inflation data released Thursday.

The dollar was last at 0.9730, up 0.4 percent.

© 2017 Thomson/Reuters. All rights reserved.

 
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The U.S. dollar strengthened against other currencies on Friday after briefly losing ground on news that Egyptian President Hosni Mubarak stepped down, with the greenback's appeal expected to continue given technical factors weighing on the euro. The euro hit a three-week...
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Friday, 11 Feb 2011 01:02 PM
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