Posted on 12/08/2004 2:52:16 AM PST by RWR8189
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LONDON (Reuters) - The dollar rose one percent against the euro and the yen on Wednesday as investors bought the U.S. currency back in the run-up to the year-end and eyed the impact of the dollar's weakness on other economies.
Worries about the United States' ability to fund its huge currrent account deficit have led to persistent weakness in the dollar, taking it to fresh record lows against the euro on Tuesday and five-year lows against the yen last week.
But investors are looking to take profits on the climb of a broad spectrum of currencies against the dollar, while the decision by Canada this week to leave interest rates unchanged sparked concern about the speed of the recent moves.
"Currency funds and trading desks are looking to lock in their nice profits of the last six weeks, given the year-end is so close," said Michael Klawitter, currency strategist at WestLB in Duesseldorf.
"The Canadian rate decision suggests central banks are concerned about their currencies' rise."
The dollar pierced the $1.33 barrier to this week's high of $1.3294 per euro by 3:48 a.m. EST, nearly two cents above record lows of $1.3470 set in the previous session.
The dollar rose to its highest against the yen in almost three weeks at 103.98.
It also rose two percent against the Australian dollar and two-thirds of a percent against the Canadian dollar, hitting one-month highs against both currencies after the Australian and Canadian central banks left interest rates unchanged this week.
The dollar has recovered nearly five percent from recent nine-month lows against the Australian dollar and four percent from 12-year lows against the Canadian dollar, as investors fear the strength of the commodity currencies is starting to bite their economies.
Commodity and oil prices have fallen this week, providing additional support for the U.S. currency, since the United States is the world's largest consumer of oil.
U.S. oil prices touched a new three-month low at $41.37 on Wednesday, $14 below record highs hit in October. CENTRAL BANK FOCUS
Comments from euro zone policymakers this week have also made market players cautious about chasing down the dollar down to $1.35 per euro, a level at which many traders believe the European Central Bank would consider taking action.
Concern also remains about Japanese intervention to weaken the yen. Japanese authorities intervened heavily in the first three months of the year to weaken their currency and make Japanese exports more competitive.
Meanwhile, the U.S. is the only major economy expected to raise interest rates this month.
The Fed is widely expected to increase rates by 25 basis points to 2.25 percent next Tuesday.
Analysts said losses in the dollar -- which has plunged around nine percent versus the euro and the yen in about two months -- were starting to affect global rates.
The Reserve Bank of Australia said on Wednesday that it would keep its official cash rate unchanged at 5.25 percent. The Bank of Canada kept key interest rates steady at 2.50 percent on Tuesday.
"There's definitely evidence that central banks around the world are trying to resist dollar weakness to some extent," said Jake Moore, forex strategist at Barclays in Tokyo.
The central banks of Britain, New Zealand and Sweden all meet this week, but all are expected to keep rates steady.
Interest rate differentials were starting to work in the favor of the dollar, analysts said, with this week's Treasury auctions of five- and 10-year paper expected to attract demand.
The sky is rising! (today)
looks like colin powell in that picture..
Sooner or later, and the signs are that it is going to be sooner, all the speculators that have been selling dollars are going to start cashing in their profits by buying the dollar back. When the herds start doing it to avoid being left behind, the dollar will rise fast for a short period of time. The inverse is going on with oil as we speak.
Japanese have a yen for USD
Nope....I am pretty sure..THAT.. is Ben Franklin....
;)
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I am going to hide in the weeds here and wait for the guys who, when the dollar was going down, say it's bad. I'm sure that now that it went up, they'll say it's bad.