Dollar steady as euro licks wounds

NEW YORK, Dec 18, 2009 - The dollar held in a narrow range Friday while the euro recouped some of its hefty losses from the week amid persistent concerns over Greece's heavy debt burdens.

Some analysts said the problems in Greece combined with data suggesting a solid US economic recovery and possibly higher interest rates next year have prompted a big shift in sentiment on currency markets.

At 2200 GMT, the euro was at 1.4343 dollars, up from 1.4338 dollars in New York late on Thursday, and after the European unit dipped briefly below 1.43 dollars.

Michael Malpede at Easy Forex said the euro got a respite from its recent problems, "supported by a report that the German IFO business sentiment hit its highest level in 17 months and the EU trade deficit swung to surplus."

He said some improvement in risk appetite helped the European unit, amid a more positive tone in financial markets that generally helps riskier assets such as the euro.

Yet dealers said the dollar was on an upward trend against the euro, which was hammered this week after Greece suffered another credit ratings downgrade - this time targeting several top banks - and the US Federal Reserve gave an upbeat outlook for the US economy. "There has also been a clear upturn in dollar sentiment, with the market now prepared to give the currency the benefit of the doubt with regard to the pace and scope of what is still deemed to be a gradual recovery," said Calyon analyst Stuart Bennett.

Camilla Sutton at Scotia Capital said the dollar has gained 4.5 percent on the euro since lows hit November 26.

"The move has been a powerful example of how a shift in sentiment can quickly move markets," she said.

"The catalyst was likely a shift in fundamentals with the combination of stronger US economic data and a realization that fundamentals in some parts of the eurozone are weak. The market has punished the euro as sovereign risk has come to the forefront."

The dollar firmed to 90.40 yen from 89.77 yen on Thursday after Japan's central bank said that it was vital for the world's number-two economy to snap out of deflation, setting the stage for further action to battle falling prices.

"We can be sure that the BoJ will reaffirm its commitment to keeping interest rates low for a long time to come," said Neil Mellor at Bank of New York Mellon.

"But whether the BoJ will be prepared to go one step further than this and introduce further measures akin to those implemented by the Bank of England and Federal Reserve is far from clear."

In late New York trade, the dollar stood at 1.0419 Swiss francs from 1.0472 Thursday.

The pound was at 1.6160 dollars after 1.6155. (AFP)