Dollar Edges Up in Holiday-Thinned Trading


The dollar recovered in trade thinned by a U.S. market holiday on Monday, as investors locked in profits following the currency's worst weekly performance of the year so far.

Dollars and Euro

A series of bleak U.S. economic reports last Friday, including one showing consumer sentiment hitting a 16-year low, had rekindled worries about a U.S. recession and reinforced expectations for more hefty interest rate cuts.

"I think it's just position unwinding with the United States on holiday today (but) we are still negative on the dollar," said Carl Hammer, analyst at SEB in Stockholm.

"We do think the top is approaching but we have the short-term forecast of trying the $1.50 level again, mostly on the back of the weakening U.S. economy."

The dollar was up slightly against a basket of major currencies, after falling 0.74 percent last week in its worst weekly performance since December.

The euro edged down against the dollar, but held within reach of a two-week peak of around $1.4710 set on Friday.

The greenback was slightly firmer against the yen .

Against higher-yielding currencies such as the Australian dollar, the U.S. currency was much weaker.

Australian Rate Hike Expected

The Aussie climbed half a percent to a three-month high of US$0.9140 thanks to its hefty yield advantage and expectations that the Reserve Bank of Australia (RBA) will raise rates from the current 11-year high of 7 percent as early as March.

That was in sharp contrast to the Fed's deep cuts in benchmark rates since September to 3 percent from 5.25 percent, with investors eyeing another 50 basis point reduction at the March policy meeting.

"The minutes should confirm that the Fed is OK to cut again if necessary and we are sure it will deliver another rate cut at the next (meeting), so we see no big reason to expect a lasting trend reversal in the dollar," said Carole Laulhere, currency strategist at Societe Generale in Paris.

Elsewhere, sterling fell to a one-month low against a trade-weighted currency basket as news Britain had decided to nationalize ailing bank Northern Rock added to worries about the health of the UK economy.

On Tuesday, the focus will likely be on RBA minutes, Canadian inflation data and, above all, on the mood in which U.S. investors return to the market after a long weekend.