TORONTO (Dow Jones)--The dollar slumped against the euro, the U.K. pound and other risk-sensitive currencies Friday as U.S. stocks rebounded and investors positioned themselves for the meeting of G-20 leaders in Toronto over the weekend.
The common currency's recovery in North American trading from an overnight retreat followed the same pattern seen all this week. The euro fell in Asian and European trading, but regained lost ground during the North American session.
"Overnight, they don't seem to like euro very much," said Steve Butler, director of foreign exchange with Scotia Capital in Toronto. "It's just like a tale of two different sessions."
The recovery coincided with a push higher in U.S. stocks that took the Dow Jones Industrial Average into positive territory from losses earlier on. Soon before the close of trading, the DJIA slipped back into the red.
The euro reached a high at $1.2396 in afternoon trading as risk appetite recovered before it receded slightly, according to EBS via CQG.
While currency movements were fairly limited, the greenback retreated against all its widely traded rivals except the yen, losing to the U.K. pound, Swiss franc and commodity-based currencies like the Australian and Canadian dollars.
Late Friday afternoon, the euro was at $1.2388, up from $1.2328 late Thursday, according to EBS via CQG. The dollar was at Y89.26, down from Y89.39, while the euro was at Y110.56, up from Y110.28. The U.K. pound was at $1.5062, up from $1.4924 late Thursday. The dollar was at CHF1.0927, from CHF1.1024.
The ICE U.S. Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 85.270, down from late Thursday's 85.760.
The euro's rally was driven in part by a higher shift in short-term euro interest rates, but much of the impetus came from strength in the U.K. pound, said Sebastien Galy, currency strategist at BNP Paribas in New York.
"The real move seems to have come out of the sterling side," Galy said. "You're starting to see a switch in sentiment in sterling."
The euro fell to a series of all-time lows against the Swiss franc Friday, with the most recent at 1.3456 franc. However, the common currency rallied a bit against the franc alongside its advance on the dollar, trading at CHF1.3537 late afternoon in New York.
To see the euro's performance against the Swiss franc, please see:
http://dowjoneswebservices.com/chart/view/4183
Thin market conditions and the reduction of bets on the greenback also fueled a bit of demand for riskier currencies as world leaders gather in Toronto for the weekend meeting of the Group of 20 nations.
Analysts expect news about regulatory reforms, a global bank tax and debate about stimulus versus monetary tightening from the G-20. Because investors are unsure what the meeting will bring, positions were squared as trading wound down for the week.
Meanwhile, the cost of insuring Greek sovereign debt against default rose again, striking a new record high, on growing market anxiety that Greece may suffer from a fall in tourism.
"The return of volatility in Greek spreads comes on the back of concerns that the Greek economy could experience a larger hit this year than anticipated. In particular, a decline in tourism in Greece this summer could be problematic," said Philip Gisdakis, head of credit strategy at UniCredit.
With all the uncertainty about the euro zone, investors have slightly increased their bets against the euro, according to data released Friday.
Net speculative bets against the common currency, called shorts, rose to 71,000 contracts with a value of $10.9 billion in the week ended Tuesday, compared with last week's 62,360 contracts valued at $9.6 billion, according to a Scotia Capital analysis of the weekly Commitments of Traders report released by the Commodity Futures Trading Commission late Friday afternoon.
A lack of negative news--as opposed to anything necessarily positive coming out of the euro zone--has benefited the common currency, Camilla Sutton, currency strategist at Scotia Capital, said. "It tells us that we're really in a bit of a holding pattern here," Sutton said, noting that net bets against most other major currencies stayed within tight ranges.
With the ICE Dollar Index weakening, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was up 0.56% from late Thursday, while its PowerShares U.S. Dollar Index Bullish was down 0.56%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE's Dollar Index.