The dollar rose versus the Japanese yen and Swiss franc Monday as investors snapped up riskier assets such as stocks, encouraged by a dip in oil prices and unexpectedly strong earnings from HSBC.
But the slight rise in investors' appetite for risk revived interest in carry-trades, helping to lift the high-yielding euro, sterling and the Australian and New Zealand dollars against the U.S. currency.
Carry trades are strategies in which investors borrow low-yielding currencies to buy assets offering higher returns.
Some analysts now regard the dollar as a funding currency, after the Federal Reserve slashed its overnight lending rate by 325 basis points to 2.0 percent since mid-September.
"With equities moving higher, we are having a little flow back into carry trades, which is helping euro/yen and propping the euro up against the dollar, in addition to sterling and the other high yielders," said Mark Meadows, senior currency strategist at Tempus Consulting in Washington.
The dollar jumped to an intraday high of 104.04 yen but more recently was below 104.
Against the Swiss franc the dollar was up 0.4 percent at 1.0444 francs, but away from a session peak of 1.0511.
The euro vaulted 1.3 percent to an intraday peak of 161.37 yen, helping the single currency to erase earlier losses against the dollar.
The euro was above $1.55. There is a strong correlation between the euro/yen and stocks, and gains in the currency pair tend to feed through to euro/dollar.
Traders also attributed the euro's advance against the dollar to stop-losses above the 1.55 area amid thin liquidity, with most European markets closed.
"There are stop losses above 1.55 on euro/dollar, which could be driving us up here. Euro/yen strength is also strengthening the euro (against the dollar)," said Firas Askari, head currency trader at BMO Capital Markets in Toronto.
Lots of Economic Reports on the Way
U.S. and global stocks were cheered by news that European banking heavyweight HSBC posted unexpectedly strong first-quarter earnings, as well as by a fall in oil prices.
Investors will watch a big slate of economic data, especially April U.S. retail sales Tuesday, as well as speeches by several Fed officials for clues on whether the U.S. central bank will cut rates again next month.
Chicago Federal Reserve Bank President Charles Evans said Monday the U.S. consumer was "under a lot of stress," adding that the economy still faced downside risks.
Short-term interest rate futures, which track market expectations for Fed policy, show an 86 percent perceived chance that the central bank will keep benchmark lending rates unchanged at 2 percent on June 25.
At the same time, mounting signs that European economic growth is stumbling have stirred speculation the European Central Bank could edge toward trimming rates.
This could boost the dollar, whose appeal has been undermined by the Fed's aggressive easing.
Sterling soared 0.4 percent on the day to $1.9605 after robust UK wholesale data prompted investors to trim their expectations on how far the Bank of England is likely to cut interest rates this year, but the pound subsequently has given back many of those gains.
News a major earthquake had shaken parts of China had limited initial impact on the currency market as investors awaited more news of damage.
The Australian dollar rose 0.5 percent to US$0.9470 shrugging off a survey that showed business confidence in country hit the lowest since September 2001.
The New Zealand dollar climbed 0.2 percent US$0.7706.
A report showed New Zealand housing price gains slowing for an eighth straight month and projected them to fall.