Euro steady after falling on Egypt crisis
The euro steadied against the dollar on Monday as moves to exit riskier positions tapered off, although market players remained wary of the risk that unrest in Egypt could spread across the Middle East.
The Australian dollar also pared its earlier losses, supported by renewed gains in commodities.
However, as street protests in Cairo showed no sign of abating, investors remain worried that political upheaval could hit other Arab countries, potentially disrupting oil production and heightening diplomatic tensions in the region.
“This will not be limited to Tunisia and Egypt. This could spread to other countries, which could make the whole Middle East unstable,” said Mitsuru Saito, chief economist at Tokai Tokyo Securities.
The euro was little changed from late U.S. trade on Friday at $1.3615, after bouncing from an intraday low of $1.3570 hit on trading platform EBS.
The high-yielding and commodities-linked Australian dollar was steady at $0.9944, well above its intraday low of $0.9866.
The Australian dollar had dipped close to support at $0.9860, the base of the daily Ichimoku cloud and also at around $0.9855, its 100-day moving average, before bouncing back.
“Any worsening in fears over stability in the Middle East would further dampen risk appetite, providing support for safe haven currencies like the U.S. dollar, Swiss franc and yen,” said Bank of New Zealand currency strategist Mike Jones.
Egyptian protesters were camped out in central Cairo on Monday and vowed to stay until they had toppled President Hosni Mubarak.
The dollar dipped 0.2 percent against the yen to 81.97 yen and dipped 0.1 percent against the Swiss franc to 0.9410 franc.
“It’s a no-win situation. If Mubarak stays in power you’re going to have a lot of turbulence and turmoil and demonstrations,” said Andrew Brenner, head of emerging markets fixed income, Guggenheim Securities in New York.
“If Mubarak steps down, you’re going to have a continued move to fundamentalists,” he added.
SPREADING UNREST
Some investors fear that what’s happening in Egypt could be repeated elsewhere, which could threaten their investments in many emerging markets — one of the most lucrative strategies last year.
“Behind the unrest is anger against inflation, which is hurting many people in developing countries. The trouble is, that is also happening in countries like India and China, too,” said Tokai Tokyo Securities’ Saito.
“A flood of money created in the developed world has been flowing to emerging markets. But if those markets turn out to be politically unstable, that money flow will drastically change.”
Market players are also aware that selling in some emerging market bonds could escalate to a self-feeding spiral, much like in 2008, when investors had to sell many risky assets to cover losses elsewhere.
“That’s what we saw all back on in ’08. You had money managers, you had margin calls on certain things and they would sell other things. That’s what’s going on and I think that’s what we’re going to see for the next few days. Flight to quality and the dollar should benefit from it.” said Guggenheim’s Brenner.
Gulf stock markets tumbled on Sunday as investors, rattled by turmoil in Egypt and concerns the unrest may spread, quit their positions to push indices to multi-week lows.
The Egyptian crisis is seen as having the potential to overshadow broader and more fundamental economic events this week, which include a slew of economic data such as U.S. non-farm payrolls and central bank decisions.
Source: Reuters