The euro traded below $1.09 in early-afternoon trading as the dollar recovered Thursday on the view that central bank monetary policy remained more favorable for the greenback, while it slipped against the Japanese yen and Swiss franc concerns about Gulf oil supplies. The euro hit $1.10525 early Thursday, its highest since a nearly two-week high of $1.10625 on March 18 after the Fed released its latest policy statement, before erasing its gains. It last traded down nearly 1 percent at $1.08631. Analysts said the euro has seen selling pressure above the $1.10 mark on the view that the European Central Bank's new bond-buying stimulus program should weaken the currency further, while the Federal Reserve is leaning toward tightening its accommodative policies. "It's just a matter of time before (the Fed) raises interest rates, while the ECB is only in the infancy of its QE (quantitative easing) program," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. The dollar was down modestly against the yen and franc, however, as those currencies attracted safe-haven bids from investors while also being the beneficiaries of an unwinding of bullish dollar positions amid news of geopolitical conflict. Saudi Arabia and its allies in the Middle East launched air strikes against Iran-allied forces in Yemen, which sits on a key shipping passage between Europe and the Arab Gulf, dampening risk sentiment and spurring a rise in oil prices. Saudi Arabia has also begun drawing down its foreign currency reserves for the first time since 2009 to cover a record state budget deficit caused by the plunge in oil prices, data from the Saudi central bank indicated on Thursday. The greenback has given back some gains in the wake of the Fed's latest dovish statement after rallying about 25 percent against a basket of major currencies between early May and March 17. The rally was largely on the view that the Fed could hike rates by as early as June. "The most consensus position was long dollars," said Brian Daingerfield, currency strategist at the Royal Bank of Scotland in Stamford, Connecticut. "The potential rise in geopolitical tension I think adds to this sense of clearing out of positioning." The dollar last traded at the yen at 119.38 yen, after having hit a nearly five-week low of 118.330 yen. The dollar was also higher against the franc at 0.96487 franc, after having hit a nearly one-month low of 0.94910 franc. The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.6 percent at 97.53. Source: Reuters
