Dollar Steadies Versus Euro and Yen

Reuters ^ | December 9, 2004 | Justyna Pawlak

[RWR8189]

LONDON (Reuters) - The dollar steadied versus the euro and yen on Thursday following sharp gains across the board in the previous session driven by profit-taking on bets against the long suffering U.S. currency.

Unexpectedly strong jobs data from Australia appeared to counter the rising market belief the weak dollar was hurting major economies and forcing central banks to stop interest rate hikes, which in turn would bolster the greenback's appeal.

Such arguments, driven by Canada's and Australia's decision earlier this week to hold rates unchanged, were seen as triggers for the dollar's rebound from record lows against the euro on Wednesday.

"The theme yesterday was that the weak dollar was stopping other countries from raising interest rates and repressing growth. Today this theme is being questioned," said Aziz McMahon, currency strategist at ABN AMRO in London.

"Better numbers from Australia helped this."

At 4:20 a.m. EST, the dollar traded unchanged on the day at $1.3329, after gaining almost three cents on Wednesday from Tuesday's record low of $1.3470.

It was also steady on the day versus the yen at 104.06.

The dollar also gained a little bit of ground versus the Australian dollar, but remained below Wednesday's peak of US$0.7519 which it reached after gaining more than two cents.

Sterling dropped half a cent versus the dollar to $1.9172 after October trade data showed the deficit reaching its largest level in ten months.

Data showed Australian unemployment falling to 5.2 percent in November and matching a record low set in 1977.

German Chancellor Gerhard Schroeder, on a visit to Tokyo, said he was worried about the U.S. currency's weakness against the dollar. PAUSE FOR BREATH

The dollar's sharp two-month slide was driven by worries about the U.S. current account deficit and the country's need to address it.

But the decline came to a halt on Wednesday as investors started to worry about the toll the weak dollar was taking on growth outside the United States. "There had been risk of a correction and it all fell into place yesterday," said Ian Gunner, head of foreign exchange research at Mellon Bank in London.

"But one day is not enough. Euro bulls do not show any signs of giving up, although risks remain on the corrective side."

The Bank of Canada surprised the market this week by halting its run of interest rate increases and suggesting there was no need for further policy tightening.

Australia also held borrowing costs this week as economic growth cooled, and data in Japan showed weak machinery orders.

But on Thursday there were also some strong signs from major economies, such as New Zealand, which held interest rates steady but signaled hikes could be on the horizon.

And analysts said the dollar's decline still had room to extend as investors continue to believe that the U.S. wants a weaker dollar to help correct its trade imbalance and central banks do not stand in the way.

"We don't expect this dollar bounce to extend very far," said currency strategists at Banc of America Securities in a note to clients.

Luke Waddington, head of forex trading at Royal Bank of Scotland in Tokyo said the euro could rise as high as $1.36 or $1.37 before year end, but the market would have a tough time pushing it beyond those levels.

"It was a well-needed correction," he said.

[Moonman62]

The Bank of Canada surprised the market this week by halting its run of interest rate increases and suggesting there was no need for further policy tightening.

It shouldn't have been a surprise. But I guess doing the right thing is unusual in central bank circles, and incomprehensible to the financial media..

[Belladonnakills]

you can run but you cannot hide rwr. THE US DOLLAR IS TOAST!

[Admin Moderator]

You are.