U.S. Markets

Euro, yen slide as market sentiment improves; dollar rises

NEW YORK (Reuters) - The low-yielding euro fell for a second session against the dollar on Monday, while the yen slipped for the first time in six days, as steadier global stock markets prompted investors to seek other currencies that provide better returns.

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Wall Street shares were volatile all day but recovered some of their losses after a poor start to the new year, diminishing the appeal of the euro and yen.

Europe’s common currency has been used in recent carry trades, with investors securing funds cheaply in the euro and yen because of their zero interest rates and buying other higher-yielding currencies.

The yen, however, has long been used as a funding currency for carry trades.

“Modestly improved risk sentiment was enough to cause the euro to lose some ground against the U.S. dollar,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

But the euro’s retreat may be temporary as uncertainty about China and slumping commodities remains on the forefront of investor concerns.

“We think that the benefits of the deteriorating risk environment, coupled with the generally upbeat tone of European data ex-inflation should balance out the otherwise negative effects the ECB’s (European Central Bank) ongoing efforts to stimulate the region may have,” said Christopher Vecchio, currency analyst, at DailyFX in New York.

In late trading, the euro fell 0.5 percent to $1.0873 EUR=, and slid 0.4 percent versus the yen to 127.73 yen EURJPY=.

“Whether or not current euro/dollar advances prove corrective remains to be seen and certainly no confirmation of a long-term low exists at present despite 2016 being a projected turnaround year for the dollar in general,” said global payments company AFEX Markets in London.

The dollar benefited from improving risk sentiment, rising also against the yen. It was last up 0.2 percent at 117.47 JPY=.

The dollar was also up 0.5 percent versus the Swiss franc at 0.9997 franc CHF=.

China’s yuan, meanwhile, jumped on foreign exchange markets on Monday, and was heading for its biggest daily gain in four months against the dollar in offshore trade after reports of another round of aggressive intervention by Beijing.

The tightly controlled onshore rate for the yuan strengthened 0.35 percent to 6.5701 per dollar CNY= after the PBOC set its daily mid-point rate higher for a second day. Offshore rates gained 1.2 percent to 6.6030, rivalling the yuan's biggest one-day move upwards since the launch of the offshore market in 2010. CNH=D3

Additional reporting by Patrick Graham in London; Editing by Bernadette Baum and Chizu Nomiyama