Currency markets were subdued Monday as investors adopted a more defensive stance and as market participants digested news of International Monetary Fund chief, Dominique Strauss-Kahn's weekend arrest at a crucial point in the euro-zone debt crisis.
In London trading hours, the euro reversed early losses against other major currencies, despite Kahn's shock arrest Sunday in New York, as he prepared to depart for Brussels, potentially complicating efforts to resolve Greece's debt troubles. Strauss-Kahn will miss a scheduled meeting of euro-area finance ministers to discuss the next steps in the long-running European debt crisis.
"People are still trying to gauge the effects of [the] Strauss-Kahn arrest, which together with renewed concerns about global growth and jittery commodities markets come together to make for a more risk-off environment," said Paul Meckel, a currency strategist at HSBC in London.
European equity markets were also weaker. The euro was trading in positive territory for most of the London session, shrugging off the release of euro-zone inflation numbers for April, which were in line with expectations at 0.6% on the month and 2.8% on the year.
"We've seen good buying of [the euro against the dollar] from the start of the European session and our flow remains skewed in favor of purchases," said Citigroup in a note to clients.
The pair was battered in Asian hours, hitting a seven-week low against the dollar at 1.4048 and a two-month low against the Japanese yen at Y113.40. The selloff was triggered by Strauss-Kahn's arrest, but reversed in later trade.
"The reality is that business will probably go on as normal at the IMF," Citigroup added. Nevertheless, the safe-haven Swiss franc was well bid, attracting investors seeking defensive positions.
Commodity currencies such as the Australian and Canadian and New Zealand dollar remained on the back foot as oil and metal prices traded lower and as fears over global growth drove investors out of riskier currencies.
At 1150 GMT the Australian dollar was trading at $1.0543 compared with $1.0574 in late New York Friday, the dollar was at CAD0.9754 compared to CAD0.9686 late New York Friday and the New Zealand dollar was trading at a one-month low at $0.7778 compared to $0.7874 in New York.
Later in the global day, Bank of Canada governor Mark Carney will give a speech, at 1645 GMT in Toronto, which investors will eye closely for clues over future monetary policy. "We expect a...cautious tone though he could allude to the positive employment backdrop," said RBC Capital markets in a note to clients.
Also on the agenda for currency traders is an interest rate decision by the Hungarian central bank at 1200 GMT. Market participants expect the central bank to leave rates unchanged, but central bank governor Andras Simor's comments at the subsequent press conference will be closely watched.
The Belarus ruble weakened against the dollar to BYR6500 from BYR5800 Friday, after local media reported that individual retail customers could buy the dollar at a significantly weaker rate.
At 1050 GMT the euro was trading at $1.4115 compared to $1.4122 in late New York hours Friday, while the single currency was at Y114.00 against the yen compared to Y114.14. The euro was trading at CHF1.2537 vs. CHF1.2605. The dollar was at Y80.76 compared to Y80.84, and it was trading at CHF0.8882 against the Swiss franc compared to CHF0.8929 Friday.