Dollar, euro drift as markets seek direction, yen slips

SINGAPORE: The US dollar traded in a narrow range in early Asian trading on Tuesday as a tentative recovery in investor confidence supported higher-yielding currencies, while rising political risks in Europe continued to unsettle markets.

The euro was steady at US$1.1216, while the British pound rose 0.1 per cent to US$1.3308. The Australian dollar gained 0.1 per cent to US$0.6986, while the New Zealand dollar edged up 0.1 per cent to US$0.5668.

Against the yen, the US dollar was flat at 158.56 yen ahead of an auction of 20-year Japanese government bonds.

"FX markets reflected the improvement in risk appetite, with higher-carry currencies finding buyers," Pepperstone Group head of research Chris Weston said.

"Europe was less convincing," Weston said. "French sovereign risk is clearly being priced into European equities, but the euro's resilience suggests traders aren't yet treating it as a systemic European problem."

French authorities imposed curfews in several cities on Monday after nationwide anti-government protests plunged President Emmanuel Macron's final months in office into turmoil.

In Italy, the government said it would deploy 500 troops following two days of unrest.

"The spread of French government bonds over Germany has come under renewed widening pressure against the backdrop of violent protests grabbing the headlines," ING analysts said in a client note.

"Tuesday will likely see more headlines around the 2027 budget, as (the French) Parliament is slated for a first formal vote on the revenue section of the finance bill."

The spread between French and German 10-year government bonds widened 9.9 basis points on Monday to 147.3 basis points. The yield on the US 10-year Treasury bond was flat at 5.131 per cent.

The US dollar index, which measures the greenback against six major currencies, ended a two-day losing streak on Monday, rising 0.2 per cent to 101.98.

Against the Chinese yuan, the US dollar was flat at 6.6811 yuan in offshore trading after the People's Bank of China kept interest rates unchanged, in line with market expectations.

Bitcoin was flat at US$81,906.58, while ether edged up 0.3 per cent to US$2,405.99.