Last updated: May 18, 2012 7:20 pm

Euro remains close to annual lows

The euro rose against the US dollar amid a slight easing in Spanish bond yields but remained close to lows for this year as investors remained cautious on eurozone developments.

The single currency halted its sell-off and was slightly higher against the US dollar at $1.2720 by the close of trading on Friday in London, rising 0.3 per cent during the day.

Foreign exchange traders attributed the rise to profit-taking from speculators who had short positions on the value of the euro.

The single currency remained below $1.27, levels not seen since January and lost more than 1 per cent over the course of the week.

The Australian and New Zealand dollars fell sharply to fresh lows for the year against the US dollar amid the negative mood on global growth prospects.

The Aussie lost 0.7 per cent to $0.9791, its weakest level since the end of November. The New Zealand dollar sank 1.3 per cent to a low of $0.7530, its weakest level since December.

Foreign currency analysts recommended that clients seek shelter in the dollar and the yen at the expense of currencies more exposed to global risk appetite.

“In this environment, the US dollar will continue to remain king, bettered only by the yen,” analysts at BNP Paribas said.

The yen rose against the US dollar as the Japanese government upgraded its views on the economy in a monthly report, lowering expectations of further monetary easing from the Bank of Japan.

The dollar fell 0.3 per cent to Y79.01, a fresh three-month low against the Japanese currency.

The dollar index, which weights the US currency against major currencies, gained 1.4 per cent over the course of the week.

Greg Anderson, foreign exchange strategist at Citigroup, said: “Forex markets may have already gone too far buying the dollar as they price in the global growth impact of further eurozone turmoil. However, there is nothing to prevent markets from pushing the dollar even higher, particularly when the data and event calendar is as empty as it is next week.”

Meanwhile the pound shrugged off comments by Adam Posen, member of the Bank of England’s Monetary Policy Committee, who questioned on Friday whether the central bank had been right to halt its programme of monetary easing.

Sterling rose against the US dollar, hitting a high of $1.5836 after the remarks.

However, it reversed earlier gains against the euro and was 0.3 per cent lower against the single currency at the close of London trading at €1.2406, falling from its fresh 42-month high on Wednesday.

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