Euro falls from recent highs

The euro dipped overnight (NZT) as short-term players were squeezed out of long positions after the single currency touched a three-week high against the US dollar, buoyed by Friday's US jobs data.

US payrolls, which showed far fewer jobs lost than expected, eased market anxiety over the chances of a global slowdown and boosted demand for growth-linked currencies such as the Australian dollar.

"Risk sentiment is a little bit better, building on gains from Friday," said Adam Cole, global head of FX strategy at RBC Capital Markets.

The euro rose to US$1.2918, its highest since August 12, helped by Asian central banks, excluding Japan, converting US dollars into euros after they intervened to rein in gains in their own currencies against the greenback, traders said.

By 1.50am NZT, the euro was slightly down at US$1.2877. Gains were capped by offers from semi-official names around US$1.2920, traders said, adding stops were seen through US$1.2865. Trade was subdued with US markets closed for the Labor Day holiday.

US non-farm payrolls fell 54,000, a much smaller drop than the predicted 100,000. Private employment, considered a better gauge of labour market health, increased 67,000.

Analysts were sceptical about the sustainability of a risk rally as the US economic outlook remained murky.

"We expect any near-term weakness in safe-haven currencies to prove both short-lived and modest," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

Sterling fell to a six-week low versus the euro, hit by reports of heavy selling by a UK clearing bank.

"That was the only notable move today, and in thin conditions it was having an exaggerated price effect," RBC's Cole said.

The US dollar index was flat from late Friday US trade at 82.08. Support was seen at 81.82 - the 50 percent Fibonacci retracement of the index's August rise from 80.085 to a high of 83.559.

YEN LONG POSITIONS TRIMMED

The US dollar was flat against the yen at 84.21 yen, not far from a 15-year low of 83.58 hit last week. It had risen to 85.23 after the US jobs data, but quickly erased the gains.

The pair has been highly correlated with US bond yields. In the past month, the yield on the benchmark 10-year US Treasury note has shed 12 basis points, while US dollar/yen has fallen more than 1.5 percent in the period.

On Friday, the US dollar did not make much headway versus the yen even as payrolls pushed US yields sharply higher, with a spike in Japanese bond yields partly offsetting the rise.

Japanese exporter offers also capped gains in the US dollar, with sell orders in the 84.50-85.00 yen region, traders said.

Speculators trimmed their long positions on the yen last week but still have big yen long positions, data from the US Commodity Futures Trading Commission showed on Friday.

Hedge funds were selling US dollar/yen while other asset managers were emerging as bit buyers, said Gareth Berry, currency strategist at UBS.

On Saturday, Japanese Finance Minister Yoshihiko Noda said Tokyo would take decisive steps to stem the yen's rise when needed while suggesting co-ordinated currency intervention in the market was a difficult option.

Bilal Hafeez, foreign exchange strategist at Deutsche Bank, said that for intervention to work it had to be co-ordinated "and it does not look that the US is prepared for that.

"So going solo by the Japanese authorities could work for a day, but unlikely beyond that. We are looking for the US dollar/yen to fall to 80 yen in the medium term."

- Reuters