* U.S. dollar edges lower, credit worries weigh
* All eyes on earnings results from U.S. banks
* Pound eases as BoE policymaker warns of recession
By Kevin Yao and Wayne Cole
SINGAPORE, July 21 (Reuters) - The U.S. dollar drifted
lower on Monday after a firm Asian opening, weighed down by
lingering worries about the health of the U.S. financial sector
ahead of earnings reports from regional banks this week.
The dollar inched down against a basket of currencies to
72.10 <.DXY> from Friday's levels. The euro gained a tenth of a
percent from late New York trade on Friday to $1.5864 <EUR=>.
"The sentiment towards the dollar is still quite fragile,"
said Sharada Selvanathan, currency strategist at BNP Paribas.
"I think what's supporting the euro right now is we saw
some pretty hawkish comments from some ECB members at the end
of last week that seems to suggest that ECB isn't really going
to be cutting rates any time soon," she added.
The European Central Bank raised its key interest rate by
25 basis points to 4.25 percent on July 3 to show it was
serious about anchoring inflation expectations.
Meanwhile, the U.S. Federal Reserve is seen in no rush to
raise its bechmark interest rate, now at 2 percent.
Callum Henderson, chief currency strategist at Standard
Chartered Bank, said some market chatter that central banks
were trying to diversify their foreign exchange reserves out of
the dollar also weighed on sentiment towards the dollar.
UBS expects the euro to rise to $1.6 in one month due to
concerns about the U.S. financial industry and elevated
eurozone inflation risks, its strategist Geoffrey Yu said in a
note.
Last week, the dollar managed its biggest weekly gain
against the euro in a month, buoyed by results from Citi <C.N>,
JPMorgan Chase <JPM.N> and Wells Fargo <WFC.N>, which beat
expectations and sparked a rally in financial stocks.
The KRW index, which measures the broader U.S. banking
sector, ended the week with a 35 percent gain from a trough hit
on Tuesday.
That bounce lessened the need for safe havens, lifting U.S.
10-year Treasury yields over 30 basis points last week to 4.09
percent. That proved attractive for carry trades, with
investors borrowing yen at low rates to buy higher-yielding
currencies.
EYES ON SMALLER U.S. BANKS
The U.S. currency was traded at 106.72 yen <JPY=>, down a
fifth of a percent from late New York trade.
Meanwhile, the Australian dollar climbed to an eight-month
peak at 104.10 yen <AUDJPY=R>. Likewise, the euro was near
all-time highs at 169.30 <EURJPY=R>.
Still, markets remain cautious ahead of a raft of regional
bank earnings this week as investors fear more write-offs that
could threaten the stability of some and perhaps cause a repeat
of Indy Mac's <IMB.N> demise.
Banks in the spotlight include Regions Financial Corp
<RF.N>, Fifth Third Bancorp <FITB.O>, SunTrust Banks Inc
<STI.N>, Wachovia <WB.N> and Washington Mutual <WM.N>.
"JPMorgan and Citi might have done OK, but this week brings
reports from WaMu and Wachovia, two institutions that have been
singed by the subprime debacle," noted David Watt, a senior
currency strategist at RBC Dominion Securities.
"Given that few of the major currencies seem attractive to
investors at the present time, a sad-sack performance is
appropriate," he added, noting that the euro and sterling had
economic troubles of their own.
Indeed, the pound came under early pressure after Bank of
England policymaker David Blanchflower warned the British
economy was heading into recession and interest rates should
fall to "well below" their current 5 percent.
Blanchflower was the lone voice calling for a cut in rates
at the central bank's May and June meetings. Sterling lost a
quarter of a percent from late Friday to $1.9922 <GBP=>.
The dollar had also been supported last week by a sharp
pullback in oil prices, which were down $18 from their highs at
one stage.
Yet, oil prices <CLc1> gained 96 cents to $129.84 a barrel
on Monday after talks over Iran's nuclear ambitions failed to
reach a conclusion.
Looking ahead, traders were awaiting a speech from
Philadelphia Fed chief Charles Plosser on Tuesday, while New
York Fed President Timothy Geithner and SEC Chairman
Christopher Cox are set to testify before a House Financial
Services Committee hearing on regulation on Thursday.
The Fed releases its Beige Book summary of the economy on
Wednesday where it will have to balance weakness in the housing
market and the squeeze in credit markets against rising
inflation.
Key U.S. data includes June existing home sales on Thursday
and new home sales on Friday.
Currency bid prices at 0603 GMT. All data taken from
Reuters with percent change calculated from the daily U.S.
close at 2013 GMT.
Last US Close %Chg YTD % 2007 Cls
Friday
-------------------------------------------------------------
Euro/dlr <EUR=> 1.5864 1.5843 +0.13 +8.74 1.4589
Dlr/yen <JPY=> 106.72 106.95 -0.22 -4.14 111.33
Euro/yen <EURJPY=> 169.34 169.41 -0.04 +4.19 162.53
Dlr/swiss <CHF=> 1.0216 1.0221 -0.05 -9.87 1.1335
Stg/dlr <GBP=> 1.9922 1.9973 -0.26 +0.38 1.9847
Dlr/can <CAD=> 1.0057 1.0056 +0.01 +0.93 0.9964
Aus/dlr <AUD=> 0.9752 0.9701 +0.53 +11.36 0.8757
Euro/swiss <EURCHF=> 1.6211 1.6196 +0.09 -1.98 1.6539
Euro/stg <EURGBP=> 0.7962 0.7930 +0.40 +8.34 0.7349
Nzd/dlr <NZD=> 0.7611 0.7608 +0.04 -0.72 0.7666
Dlr/Norw <NOK=> 5.0788 5.0832 -0.09 -6.55 5.4347
Euro/Norw <EURNOK=> 8.0535 8.0528 +0.01 +1.58 7.9283
Dlr/Swed <SEK=> 5.9552 5.9638 -0.14 -7.85 6.4622
Euro/Swed <EURSEK=> 9.4487 9.4485 +0.00 +0.19 9.4304
(Editing by Neil Fullick)
