By Agency Reporter

Tuesday, 8 Feb 2011

TOKYO: The dollar lost some ground to its European counterpart in Asian trading on Monday, though investors appeared to be more concerned with the euro’s downside risks than further upside potential, marketwatch.com reported on Monday.

The euro got some help from French Finance Minister, Christine Lagarde, who said on Sunday that global foreign-exchange imbalances must be tackled, as the euro is the victim of a weak United States dollar and Chinese yuan.

“We must reform the international monetary system so that the euro is not caught in the middle, hit by the expense of trade-offs between two currencies that are deliberately weak,” Lagarde said in an interview on television channel France 5.

The euro rose to $1.3608 from $1.3590 in late North American trading on Friday.

Despite the gain, currency analysts said rising US. Treasury yields would also keep the European unit in check. The yield on the 30-year instrument rose to its highest level in more than nine months on Friday.

“The euro will look increasingly vulnerable to a further drop this week especially given the increase in net positioning over the past week” to February 1, said Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole.

President Jean-Claude Trichet at a news conference Thursday continues to express confidence that inflationary pressures will ease, adding that current interest rate levels are appropriate. Trichet also says he sees some risks for the euro-zone’s economic recovery.

“The potential for position squaring looms large as positioning is now well above the three-month average. Kotecha said Monday.

The dollar index, a measure of the US unit against a basket of six currencies, slipped to 77.911 from 78.023 on Friday.

The British pound edged up to $1.6129 from $1.6105 on Friday.

Source: Punch