Dollar stable as market fears about Portugal ebb

13/07/2014 08:54 AST

(Reuters) - The U.S. dollar was stable against the yen and the euro on Friday as Portugal’s largest bank sought to reassure investors about its financial stability.

Banco Espirito Santo said on Thursday night that loan losses to the troubled empire of its founding family would not put the bank at risk of running short of capital.

That eased some concerns. The dollar weakened to nearly two-month lows against the yen on Thursday as investors worried about contagion and sought out safe haven investments.

“It put concerns in the market about European growth and the bank sector,” said Mark McCormick, a macro strategist at Credit Agricole in New York. “A lot of the concerns were idiosyncratic.”

The dollar was steady at 101.33 yen and little changed against the euro at $1.3609. It rose 0.07 percent against a broad basket of currencies to 80.185, according to the dollar index.

Thursday's market move was a shift for some traders, with a return to "risk on" and "risk off" sentiment taking over from monetary policy.

"We have been taking our cue from the bond market, now we’re looking at equities," said Boris Schlossberg, managing director in fx strategy at BK Asset Management in New York.

The U.S. dollar has been largely rangebound against the euro and the yen in recent months, struggling to gain strength as the Federal Reserve maintains a steady, relatively dovish tone and looks for further growth before indicating an interest rate hike is on the horizon.

Minutes from the U.S. central bank’s June meeting, released on Wednesday, offered no new insight into Fed policy. The next focus will be testimony by Fed Chair Janet Yellen to Congress on Tuesday.

With the Fed and the European Central Bank seen as unlikely to announce any shifts in policy in the near term, investors continue to seek out higher-yielding investments in alternative countries.

“The theme is really short the dollar, short the euro and a lot of carry, especially in emerging markets and higher-yielding G10,” said McCormick.

The Canadian dollar, meanwhile, weakened on Friday after data showed the country unexpectedly shed 9,400 jobs in June, with the unemployment rate rising to 7.1 percent from May's 7.0 percent.

The loonie fell 0.78 percent against the U.S. dollar to C$1.0729.

The Australian dollar also fell after Reserve Bank of Australia Governor Glenn Stevens warned in The Australian newspaper that the Aussie currency was likely too strong, and at risk of weakness from a potential U.S. interest rate increase.

The Australian dollar fell as low as US$0.9373 from US$0.9394 before the article was published. It later rose back to US$0.9387.

Reuters