NEWS / Foreign Exchange

Dollar slips as risk aversion eases but trade thin

By Katie Hunt

LONDON - The dollar slipped against the yen and euro in holiday-thinned trade on Monday as investors grew more confident after recent market jitters, and as China announced new measures to cool its property market.

The dollar hit session lows against the euro as China said it would tax proceeds from sales of houses sold within five years of purchase and increase the down-payment on individual home mortgages, the official Xinhua news agency reported.

"Any measures taken to tighten in China could imply further yuan appreciation and that would be negative for the dollar," said Benedikt Germanier, FX strategist at UBS in Zurich.

The measures come after Beijing surprised markets last month with its first interest rate rise in 18 months to rein in the country's white-hot economic growth.

Financial markets in London and the United States, the world's two biggest currency trading centres, are closed on Monday for public holidays.

STABILISATION

The U.S. currency ended higher last week as speculators unwound dollar-selling positions they had taken after the Group of Seven economic powers called last month for greater currency strength in Asia to help fix global imbalances.

The dollar had also benefited from a sell-off in stock markets, emerging market currencies and commodities that caused investors to convert riskier holdings into cash, but analysts said that impulse was now fading.

"We're seeing some stabilisation after a bit of a panic in the last week or so," Peter Fontaine, currency strategist at KBC in Brussels, said.

"There are several signals that the risk aversion story is incorporated into the market and we can now move on," he added.

By 1230 GMT, the dollar was down 0.4 percent on the day at 112.24 yen. The U.S. currency failed to break above 113 yen last week but kept some distance from an eight-month low just under 109 yen hit earlier in May.

The euro was up a quarter of a percent at $1.2762, but still more than two cents below its one-year high around $1.2970 hit in mid-May.

The single European currency eased slightly to 143.25 yen.

The euro showed little reaction to upbeat German consumer confidence data and euro zone current account and investment figures.

The forward-looking GfK consumer sentiment indicator rose to 6.8 in June -- the highest reading since late 2001 -- from an upwardly revised 5.8 in May, the Nuremberg-based group said, while the euro zone current account deficit narrowed to 3.2 billion euros in March from 4.0 billion in February.

SNOW TO STEP DOWN?

Traders were keeping an eye out for updates on the possibility that U.S. Treasury Secretary John Snow will soon step down.

U.S. media reported at the weekend that President George W. Bush was leaning towards former Commerce Department Secretary Don Evans take over the Treasury. Republican sources said last week that Snow would likely step down in June.

"Evans is likely to put pressure on Asian currencies to rise against the dollar," said analysts at JPMorgan Chase Bank in a report to clients.

This week is heavy with high-profile U.S. data, including the Institute for Supply Management's manufacturing index on Thursday and the monthly employment report on Friday.

Signs of solid economic activity and inflationary pressures could cement market expectations for another U.S. interest rate hike in June, boosting the dollar, analysts said.

The minutes of the central bank's May 10 meeting, due on Wednesday, will also be scoured for more clues about the outlook for Federal Reserve policy.