The euro is heading for its biggest weekly fall against the dollar in two years

Euro slumps against the dollar The euro is heading for its biggest weekly fall against the dollar in two years, as investors fret about the state of the European economy. The euro's fall was made worse by a string of upbeat economic data coming from the US, which helped the dollar.

In early morning trade on Friday, the euro stood at $1.092, down nearly 2% from the start of trade on Thursday.

The euro has lost 9% of its value against the dollar since June, partially reversing a sustained 33% increase since early last year.

Of the world's three major currencies, it has suffered most from the exodus from government bond markets by traders who previously preferred European bonds prior to the Iraq war.

"The dollar's sharp break higher against European currencies yesterday was fuelled further by better than expected economic data and news from the US, maintaining the optimism regarding a recovery in the second half of the year," said Mitul Kotecha, chief currency strategist at BNP Paribas.

Four European countries - including Germany and Italy - are now in recession, whereas the US economy is showing tentative signs of a recovery.

The news coming out of Europe is increasingly gloomy, with France on Wednesday revealing its economy shrank by 0.3% between April and June. In contrast, the latest data from the US indicated the economy may be improving.

Optimism over the US' economic prospects was reinforced by the Federal Reserve Bank of Philadelphia on Thursday.

It found that factory activity in the mid-Atlantic region reached a five-year high in August, indicating that the US manufacturing sector could be on its way to recovery.

The findings followed data released earlier in the day which showed the number of people lodging new claims for jobless benefits fell to a six-month low of 386,000 last week.

And the Conference Board, a private research group, said its index of leading indicators for July rose for the fourth consecutive month with an increase of 0.4%. "Overall, we're continuing to see the dollar ride this wave of optimism," said Alex Beuzelin, currency analyst at Ruesch International.

"The data that we've seen today provide further evidence to support that the fundamental growth gap between the U.S. and eurozone is widening. And that is fuelling the dollar's rally," he added.

The fall in the euro could eventually help pull Europe out of recession, however.

Figures from the German economy on Thursday showed that it was the collapse of exports, hurt by the high value of the euro, that pushed Germany into recession last quarter.

Looks like Mr. Bush isn't the doofus they want him to be. The NY Post saw it coming:

NOW, BUSH IS GOING TO WAR AGAIN, AGAINST THE EURO

May 25, 2003 -- FRENCH President Jacques Chirac is preparing to host President George W. Bush and the other G8 leaders in Evian, France next weekend and it appears he has more on the agenda than a sampling of the region's spring water and a trip around Lake Geneva.

In fact, according to European press reports, the French leader is "preparing to embarrass" the U.S. President with an agenda heavy on the environment and light on the war against terrorism.

Yes, you heard it right. This French friend of Saddam's plans to use the summit as a stage to promote his Gallic view of world order: a world where Euroland rivals America, with France calling the shots.

"He doesn't want the summit to become a victory lap for theAmerican President," noted one observer, referring to Chirac. Rather than focus on the economy and the fight against global terrorism, as the White House would prefer, Chirac has chosen to stress themes such as AIDS and climate change.

Well, in case you haven't noticed, Monsieur Chirac, the climate has changed quite a bit in recent months, and not for the better in your neighborhood. President Bush knows how to hold a grudge - especially when it is so well deserved. He really did mean it when he promised he would never forgive or forget France's cowardly behavior before the U.N. this spring.

Think it's all a bluff? Don't count on it. When President Bush stays in a Swiss Hotel on the west side of the lake during your Evian summit next weekend the picture will tell a thousand words about what the White House really thinks about rapproachment.

But forget about sleeping arrangements for a minute and take a look at the reparations the U.S. is exacting on you and your German allies in the global currency markets. You see, the folks in Washington know that a weaker dollar is in the best interests of the U.S. economy and they've set about making that goal a reality, even at the expense of the French and German economies.

Even with Europe on the brink of recession the White House has let the greenback swoon day after day - down 27 percent against the euro just since last summer.

In fact, it seems as if the administration believes the faster the drop in the dollar the better - as it gives foreign investors less time to pull out of our stock and bond markets. Not that the French seem even to have noticed. Many have been too busy gloating about the almighty euro to focus on the devastation it's having on their economy or their U.S. investments.

No, President Bush isn't letting the dollar weaken to punish the French. A weaker greenback was in the playbook all along. It just so happens that France's bad behavior has made the execution of a weak dollar policy a lot quicker and less painful for the U.S economy. And for that we can all say "merci."

TERRY KEENAN is senior business correspondent and anchor of Cashin' In, an investing program that appears on Fox News Channel on Saturday mornings at 11:30. E-mail terry.keenan@foxnews.com.

here is bloomberg's report on it

Dollar Poised for Weekly Gain, Gaining 3.5 Percent Versus Euro
Aug. 22 (Bloomberg) -- The dollar headed for its biggest weekly gain versus the euro in more than two years, adding 3.5 percent, on signs U.S. growth is accelerating as Europe's economy struggles to expand.

Demand for the dollar has pushed the currency up more than 9 percent since May 27, when it reached a record low of $1.1933. The increase has eased concern among some investors that the U.S. will struggle to attract enough money to finance the deficit in its current account, the broadest gauge of trade and investment.

``Sentiment has definitely shifted to the dollar,'' said Larry Brickman, a currency strategist in New York at Banc of America Securities LLC, one of the five most accurate forecasters of euro-dollar exchange rates last quarter among 52 companies surveyed by Bloomberg News. ``More and more money is flowing into the U.S. as the economy improves.''

Against the euro, the U.S. currency advanced to $1.0884 at 1:35 p.m. in New York from $1.0923 yesterday. The gain this week is the most since the five-days ended March 16, 2001, when it rose 3.9 percent. The dollar was at 117.64 yen, compared with 117.81 yesterday.

Banc of America Securities, as well as UBS AG, raised its forecast for the dollar this week. Brickman said the dollar would strengthen to $1.08 per euro in January, after ending the year at $1.09 per euro.

The dollar also rose as U.S. stocks rallied, sending the Dow Jones Industrial Average toward its seventh weekly gain in eight. The Dow reached a 14-month high on Tuesday.

``There's definitely money flowing in equities, which is giving the dollar'' a boost, Brickman said.

`Strong Side'

In the third and fourth quarters, the U.S. may grow at a 3.6 percent and 3.7 percent annual pace respectively, according to the median forecast of economists in a Bloomberg News survey. By contrast, the European Union said that growth in the euro region will be between zero and 0.4 percent in the third quarter and 0.2 percent to 0.6 percent in the fourth quarter.

The euro region's economy shrank in the second quarter as a stronger currency during the period sapped demand for European exports, a revised European Union report will probably show next month. France's economy shrank in the second quarter. Germany, Italy and the Netherlands are already in recession.

``A lot of the recent data has come in on the strong side, reinforcing expectations that the recovery is progressing and contributing to a more favorable fundamental backdrop for the dollar,'' said Robert Lynch, a currency strategist in New York at BNP Paribas SA. ``European data isn't helping. It contrasts quite sharply with the developments here in the U.S.''

The dollar may trade between $1.0750 and $1.1050 in coming days, Lynch said.

Improving Economy

The dollar's gain reflects ``the economy in the U.S., and I think if people stay optimistic then the dollar will strengthen'' further, said Ad Scheepbouwer, chief executive officer of Royal KPN NV, in a televised interview with Bloomberg News. The Dutch phone company has cut its workforce by a third in an effort to cut debt and revive profit.

More signs the U.S. economy is improving may come next week. A Commerce Department report on Tuesday will probably show that durable goods orders rose 0.9 percent in July, following a 2.6 percent gain in the previous month, according to the median forecast of economists surveyed by Bloomberg News.

On the same day, the Conference Board may say its index of consumer confidence rose to 79.9 in August from 76.6 in the prior month, according to the economists surveyed. Yesterday, the Federal Reserve Bank of Philadelphia said its index of regional manufacturing grew at the fastest pace in more than five years.

Foreign Investment

The U.S. is also attracting money into its bond markets. Foreign central bank holdings of Treasury and agency securities in accounts at the Fed rose by a daily average of $6.4 billion in the week ended yesterday to $946.2 billion. Foreign holdings of Treasury securities totaled $760.5 billion. Holdings of agency securities totaled $185.7 billion.

The U.S. needs to attract about $1.5 billion a day to sustain the dollar's value.

The euro's drop against the dollar may extend to $1.0760, said David Toth, a technical analyst at the securities unit of UBS AG, the largest trader in the $1.2 trillion a day currency market. His forecast is based on the currency's Fibonacci progression level, which tracks prices to identify trends.

``If the euro breaks through $1.0760, we may see it go down to $1.05,'' said Toth, who is based in Chicago.

The pick up in growth in the U.S. may force the Federal Reserve to raise its target for overnight loans between banks in March for the first time in almost three years, according to interest-rate futures contracts.

`Turning Around'

The yen is headed for its biggest increase against the euro since the week ended May 25, 2001. It has gained 4.9 percent against the euro this week, and was recently trading at 128.00 per euro from 128.69.

Japan's currency is also set for its widest gain in almost four months against the dollar on prospects for economic growth, and a rally in the Nikkei 225 Stock Average, which has risen more than 20 percent in 2003.

``There's a general perception that things are turning around a little bit in Japan,'' said Bill Bertha, manager of foreign exchange trading in Pittsburgh at Mellon Financial Corp., which manages more than $100 billion of assets. ``The Nikkei and the economy are doing better, and that has helped the yen.

Last Updated: August 22, 2003 13:42 EDT

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