Dollar Reverses, Gains On European Currencies

The dollar gained against most major currencies Monday as traders began squaring books amid decreasing trading volume with the approach of year-end holidays.

The euro is near a session low at $1.3053 and well off a 20-month high of around $1.3365 reached on Dec. 8.

George Davis, senior currency strategist at RBC Capital Markets in Toronto, said the dollar was recovering from "extremely oversold conditions" and said investors were squaring up their books ahead of the holidays and year-end.

"Liquidity had already diminished and it's not going to get any better as the week goes on. A lot of people are flattening out their books," he said.

Alex Beuzelin, senior market analyst at Ruesch Integrational in Washington added: "We're settling into year-end type markets, and price action will be driven more by technical factors and profit-taking than by fundamentals."

Davis said a move below $1.3030 would signal a run at $1.3000 and perhaps the key $1.2970 level, which should provide "a good entry point for long euro positions."

Earlier, the dollar posted modest losses after a government report said the U.S. current account gap widened to $225.55 billion in the July-September period, from $218.4 billion in
the second quarter of the year.

Though that was in line with the $225 billion forecast, analysts said it renewed focus on a current account deficit that's nearly 7% of U.S. gross domestic product.

"It's marginally dollar negative in the sense that once again the dollar's cyclical sources of support are waning," Beuzelin said.

The data renews concerns about whether the United States can attract enough foreign capital to finance the current account gap.

The dollar is little changed against the yen ahead of a key Bank of Japan interest rate announcement on Tuesday that UBS strategist Daniel Katzive said likely brings "the last major event risk of the year."

Few are expecting officials to lift Japanese interest rates from their current 0.25%, but some fear hawkish remarks from BOJ Governor Toshihiko Fukui could boost the yen and put pressure on yen-funded carry trades, which involve borrowing yen cheaply and then buying higher-yielding currencies.

But Derek Halpenny, currency analyst at Bank of Tokyo Mitsubishi-UFJ in London, said "any yen buying on a hawkish statement is likely to be temporary."

Elsewhere, the euro hit a fresh 6-1/2-year high above 1.6010 Swiss francs, a move traders attributed mostly to technical factors.

The Sterling is down as investors continued to take profits on the pound's recent appreciation. The British currency rose to a 14-year high above $1.98 earlier earlier this month.