Dollar gains; euro extends declines (16/05/11)

SYDNEY (MarketWatch) — The U.S. dollar strengthened during Asian trading hours Monday, driving the euro lower ahead of a meeting of European finance leaders on efforts to resolve the region’s sovereign-debt problems, a situation complicated by the weekend arrest of the head of the International Monetary Fund.

The dollar index /quotes/comstock/11j!i:dxy0 DXY -0.13%  , a measure of the U.S. unit against a basket of six major currencies, rose to 75.870, from 75.761 in North American trading late Friday.

The euro /quotes/comstock/21o!x:seurusd EURUSD +0.46%  extended its decline, trading at $1.4064, down from $1.4111 in North American trading late Friday.

The International Monetary Fund and European Union finance ministers were slated to meet late Monday. They were expected to ratify the Portuguese bailout and may adjust loan conditions for Ireland, as well as consider the situation in Greece.

An agreement on Greece — which has dominated the headlines recently on speculation over the possible restructuring of its debt arrangements — is expected to be left off the agenda, according to strategists.

Strategists at RBC Capital Markets support that view that a new deal for Greece won’t be settled this week, and they added that sovereign-debt issues have overshadowed strong regional economic data issued last Friday.

Euro-zone first-quarter gross domestic product beat analyst expectations with a quarter-on-quarter rise of 0.8%, including upside surprises in French and German growth.

“Such a performance by the core might have had — and might have — a more lasting impact on the euro when European Union periphery issues are dormant, but that is not the case at present.” RBC Capital Markets wrote.

The British pound /quotes/comstock/21o!x:sgbpusd GBPUSD +0.20%  traded at $1.6172, down from $1.6186 on Friday.

Against the Japanese yen, the dollar /quotes/comstock/21o!x:susdjpy USDYEN +0.11%   traded at ¥80.87, up from ¥80.82 late Friday.

The Australian dollar /quotes/comstock/21o!x:saudusd AUDUSD +0.12%  weakened against the greenback on Monday, trading at $1.0552, down 0.1% for the trading day.

Commonwealth Bank currency strategist Joseph Capurso said the Australian dollar/U.S. dollar is likely to move higher following the release of minutes of the Federal Reserve’s policy meeting on Wednesday.

The Commonwealth Bank forecast the Australian dollar/U.S. dollar pair will rise to $1.12 by September, “reflecting a weak U.S. dollar, strong commodity prices and low volatility.”

The recent fall in commodity prices has been matched with declines in commodity currencies, including the Australian dollar.

“The period of unrelenting trend deterioration in U.S. dollar and support for risk and carry currencies may have reached a temporary hiatus,” currency strategists at BNP Paribas said.