French Finance Minister Thierry Breton caught a volatile foreign exchange market offguard on Wednesday and sent a sliding dollar higher.
Mr Breton said that while the eurozone economy could absorb the euro’s 6.5 per cent rise against the dollar of the last three weeks, he did not want to a see any further appreciation. “We must be very attentive to exchange rates,” he said. “We will do everything so that this difference doesn’t keep going.”
Tony Norfield, global head of FX strategy at ABN Amro, said that while Mr Breton’s comments might result in a small correction, the weakening trend in the dollar was still intact. “There is not a lot Mr Breton can do about the exchange rate except moan about it,” he said.
However, analysts suggested that Mr Breton’s remarks might be the start of a concerted campaign by European officials to talk down the single currency, given earlier comments from the European Central Bank’s Christian Noyer.
Mr Noyer, a governing council member, appeared to try and take some pressure off the euro by saying there was no reason for the euro to rise, because the eurozone was not in current account surplus, but actually had a small deficit.
“The market rightly ignored him and bought the euro anyway,” said Marc Chandler, economist at Brown Brothers Harriman in New York. “Nevertheless, Mr Noyer’s comments appear to reflect an important sentiment among policy makers.”
By midday in New York, the dollar had wiped out early losses to stand 0.6 per cent higher against the euro at $1.2784, while against the yen, the dollar was unchanged on the day at Y109.70.
Earlier in the session, the yen had hit an eight-month high of Y108.99 against the dollar as Asian equity markets broke a six day losing streak, while against the euro, the yen rose 0.5 per cent to Y140.34.
Other Asian currencies were also given a boost, with the South Korean won rising 0.9 per cent to Won936.80 and the Taiwanese dollar edging 0.1 per cent higher to T$31.56.
Traders said the move came amid increasingly bearish sentiment towards the dollar, with only talk of large option-related buying preventing the US currency from breaking down through Y109.00 against the yen.
“The dollar has started to come under renewed pressure following Monday’s position clear-out,” said Mansoor Mohi-uddin, chief FX strategist at UBS. “We continue to be bearish on the dollar, given fears about the Fed cycle, central bank diversification, geo-political risks over Iran and policymakers’ focus on global imbalances.”
Sterling hit a one-year peak against the dollar and a ten-week high against the euro after minutes from the Bank of England’s May Monetary Policy Committee meeting showed that one member had voted to raise UK interest rates.
The pound peaked at $1.9025 against the dollar, before the the greenback’s late rally saw it lose ground to stand down 0.1 per cent at $1.8880 on the day. Against the euro, the pound climbed 0.4 per cent to £0.6780.
The minutes showed that David Walton had voted to raise rates to 4.75 per cent, while outgoing committee member Stephen Nickel had voted for a cut, with the other six members voting for no change.
However, Tom Vosa, head of market economics at National Australia Bank, warned that while Mr Nickel’s departure meant the risks that UK rates will rise this year had clearly increased, the MPC might still continue to be a little less aggressive than markets currently believe. “The current volatility in asset, commodity and foreign exchange markets suggest to us that the MPC can afford to ‘wait and see’ for quite some time, before needing to nudge rates higher,” he said.
