NEW YORK, June 18 (Reuters) - The dollar rose against the euro on Thursday after news of a change in the definition of the London interbank offered rate raised speculation yields on U.S. investments will move higher.
The euro's failure to firmly break the key $1.40 level also prompted investors to buy back the U.S. currency, leading to a reversal in prices, analysts said.
The British Bankers' Association said on Thursday it will change its definition of Libor to allow a greater number of institutions to participate in the daily rate-fixing process. Libor rates represent the average cost at which a panel of banks believe they can borrow funds. See [ID:nLI301653].
"The idea is that more banks participating in the Libor fixing ... will drive the Libor rate higher," said Kathy Lien, director of currency research at GFT Forex in New York. "That would mean the yield on U.S. investments will be higher, which explains part of the rally in the dollar."
Sharply higher U.S. Treasury yields also lent support to the dollar. Higher rates on U.S. investments compared to the rest of the world will make the dollar more attractive versus other currencies.
"Rates (are) really what's driving the euro/dollar today and causing it to underperform," Lien said.
Price action was choppy and traders said moves in the foreign exchange market lacked conviction, and many were waiting for the policy meeting of the Federal Reserve next week and more information on the global economy.
"We've really been stuck this week in a range and I think the market is searching for direction," said Steven Butler, head of FX trading at Scotia Capital in Toronto. "It's been see-sawing around depending on what the flavor of the day is."
In late New York trading, the euro fell 0.4 percent to $1.3885 EUR=, after rising as high as $1.4001, according to Reuters data.
The dollar had earlier fallen after the Philadelphia Federal Reserve Bank said its business activity index for the U.S. Mid-Atlantic region rose sharply to minus 2.2 in June from minus 22.6 in May. That was the highest reading since September 2008 and well above economists' expectations of minus 17.
FOREX - FOREX - FOREX - FOREX - FOREX
The euro's failure to firmly break the key $1.40 level also prompted investors to buy back the U.S. currency, leading to a reversal in prices, analysts said.
The British Bankers' Association said on Thursday it will change its definition of Libor to allow a greater number of institutions to participate in the daily rate-fixing process. Libor rates represent the average cost at which a panel of banks believe they can borrow funds. See [ID:nLI301653].
"The idea is that more banks participating in the Libor fixing ... will drive the Libor rate higher," said Kathy Lien, director of currency research at GFT Forex in New York. "That would mean the yield on U.S. investments will be higher, which explains part of the rally in the dollar."
Sharply higher U.S. Treasury yields also lent support to the dollar. Higher rates on U.S. investments compared to the rest of the world will make the dollar more attractive versus other currencies.
"Rates (are) really what's driving the euro/dollar today and causing it to underperform," Lien said.
Price action was choppy and traders said moves in the foreign exchange market lacked conviction, and many were waiting for the policy meeting of the Federal Reserve next week and more information on the global economy.
"We've really been stuck this week in a range and I think the market is searching for direction," said Steven Butler, head of FX trading at Scotia Capital in Toronto. "It's been see-sawing around depending on what the flavor of the day is."
In late New York trading, the euro fell 0.4 percent to $1.3885 EUR=, after rising as high as $1.4001, according to Reuters data.
The dollar had earlier fallen after the Philadelphia Federal Reserve Bank said its business activity index for the U.S. Mid-Atlantic region rose sharply to minus 2.2 in June from minus 22.6 in May. That was the highest reading since September 2008 and well above economists' expectations of minus 17.
FOREX - FOREX - FOREX - FOREX - FOREX
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