Previous session overview
The euro traded up to a fresh three-week high against the dollar Monday based on comparably attractive yields despite continuing tumult in the Middle East.
Euro-zone debt stresses remain unresolved, but the common currency has nonetheless plowed ahead of late on expectations that inflation will likely trigger rate hikes in the euro zone before the U.S. or Japan. The euro has been particularly buoyed by increasingly hawkish remarks by European Central Bank rate setters in the run-up to the bank's interest rate decision Thursday.
Turmoil in the Middle East continues to benefit currencies perceived as safe havens, particularly the Swiss franc and yen but not the greenback, said analysts.
The euro was recently at USD1.3825, from USD1.3754 late Friday in New York. The dollar was at JPY81.86 from JPY81.65.
The Canadian dollar rallied to its highest level in more than three years Monday morning after stronger-than-expected growth data had investors conjecturing the Bank of Canada could raise interest rates earlier than previously expected.
The U.S. dollar is trading at CAD0.9739 from CAD0.9783 just before the data. Its session low of CAD0.9735 marks its lowest level since February 2008. It's down from CAD0.9792 late Friday. Canada's gross domestic product rose by 3.3% at an annualized pace in the fourth quarter, faster than the 3.0% climb expected by the market and the 2.3% forecast by the Bank of Canada in January.
The Swiss franc may reemerge as a funding currency for carry trades, but not just yet, because the political turmoil in North Africa and the euro-zone debt crisis will keep it in demand among investors as a safe haven.
Before the financial crisis unfolded in 2007, the franc was one of the most popular currencies for use in carry trades the practice of borrowing one currency with low interest rates and investing the funds in another denomination yielding a higher rate. The franc was favored because of Switzerland's low interest rate, and the Japanese yen was appealing for similar reasons.