The FINANCIAL — A subdued tone prevailed in European trading hours Monday, although the euro was in choppy form as Greek worries resurfaced and the commodity-linked currencies of Australia, New Zealand and Canada dipped against the dollar as a week of key U.S. economic data got underway.
The euro flip-flopped around the $1.32 level against the dollar as market participants weighed up a disappointing composite purchasing managers' index reading for the euro zone although other data showed retail sales in the 17-country bloc rose in January for the first time in five months. Concerns relating to Greece's upcoming debt swap were also part of the mix, leaving investors struggling to decide what to do.
According to Borsa Italiana – London Stock Exchange Group, the euro fell as low as $1.3160 against the buck early in the session as data showed euro-zone business activity contracting again in February, but it recovered to trade above $1.32 following the release of the retail sales data.
It didn't hold there for long as caution set in ahead of Greece's debt swap-offer deadline on Thursday, where a participation rate of 75% is required for the exchange to go ahead and 67% is necessary to allow the use of collective action clauses, or CACs.
"Hopefully we will soon know the percentage of bondholders who agree to the swap and therefore whether or not the collective action clauses will be invoked. If they are, then I would expect the International Swaps and Derivatives Association to finally say that this is indeed a credit event," said Gary Jenkins, an analyst with Swordfish Research.
Nervousness about the swap was prevalent across markets with European shares under pressure and the cost of insuring European sovereign debt against default and yields on peripheral euro-zone government bonds both rising.
Against this negative backdrop, the dollar was mostly higher, firming against the pound and the Australian, New Zealand and Canadian dollars.
But the greenback lost ground against the yen as market participants looked to U.S. ISM non-manufacturing data due at 1500 GMT, hoping for some clues ahead of Friday's all-important U.S. jobs report amid growing signs of a meaningful U.S. economic recovery.
"Non-farm payrolls and ISM data are the key events this week," said Steven Saywell, head of European foreign exchange strategy at BNP Paribas in London. "Markets are increasingly focused on U.S. numbers and the response from the Federal Reserve," he added.
The other focal point of the session was China, where the yuan fell against the U.S. dollar after the central bank guided the Chinese currency much lower via a daily reference rate on the first day of the annual meetings of the country's legislature.
At 1145 GMT, the euro was trading at $1.3187 against the dollar, compared with $1.3198 late Friday in New York, according to trading system EBS. The dollar was at Y81.241 against the yen, compared with Y81.79, while the euro was at Y107.136 compared with Y107.96. The pound was at $1.5820 against the dollar, compared with $1.5830 late Friday in New York.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 79.461 compared with 79.434 late Friday in New York.
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