The euro edged up against the dollar today, recovering some of its losses made following a downgrade in Spain's credit rating, while the yen fell broadly as save-haven buying of it faded in holiday-thinned trade.
Euro's gains were capped after remarks by China's premier Wen Jiabao that international sovereign debt risks may not be over, but market players avoided building positions up as the United States and Britain are on holiday today.
"The mood in the market is calm and stable, but that is because few players are in the market today," said a senior options trader at a Japanese bank.
"We're very likely to see another volatile month ahead since the debt problems seem to be spreading into the bigger economies in the euro zone," the trader said.
The euro is on track for a fall of more than 7 per cent against the dollar in May, in what would be its sixth straight monthly fall and the biggest percentage drop since January 2009.
Traders say euro support lies at this month's four-year low of $1.2143 and then around $1.2135, a 50 per cent retracement of its 2000-08 advance.
It stood at $1.2315 today, up 0.3 per cent on the day but off an earlier high of $1.2332 hit on trading platform EBS.
China's Wen warned today that global economic growth remained vulnerable to sovereign debt risks and the possibility of a second downturn.
Traders said Wen's comments prompted market players to be cautious of China's stance on euro-zone bond holdings, even after China's central bank said last week that Europe remains a key investment market for China's foreign exchange reserves.
The euro fell on Friday after Fitch cut Spain's credit rating by one notch to AA-plus, saying its economic recovery will be "more muted" than the government forecast due to its austerity measures.
Underscoring worries about regional debt pressures, France admitted yesterday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may raise taxes to help bring down its deficit.
Attention is shifting to the US employment report for May due on Friday to see if it can help market sentiment as concerns about Europe's fiscal problems continue, traders said.
"The market is waiting for the jobs data to see if the US, whose economic figures are relatively firm, can provide support for the global economy," said Satoshi Okagawa, head of forex and money trading at Sumitomo Mitsui Banking in Singapore.
The dollar rose 0.5 per cent to 91.52 yen.
Some month-end dollar demand emerged against the yen but Japanese exporters were expected to sell into moves up to 91.50 yen, traders said.
The euro rose 0.8 per cent to 112.78 yen, having fallen 0.7 per cent on Friday.
Another focus of the market this week is the meeting of finance ministers and central bankers from the Group of 20 wealthy and developing economies in South Korea. The meeting is expected to grapple with Europe's debt crisis, financial reforms and efforts to rebalance the global economy.
Reuters