Euro Scores Another Record Vs. Dollar

Reuters ^ | December 29, 2004 | Justyna Pawlak

[RWR8189]

LONDON (Reuters) - The euro set a record high against the dollar for the fifth session running on Wednesday and tested last year's lifetime high against the yen as investors' bearish views of the U.S. currency dominated markets.

Trading volumes were thin in the holiday period between Christmas and New Year.

There was also little news to turn investors' focus away from their worries about the burden of the U.S. current account deficit on the dollar and about the ability of the U.S. economy to attract enough money to plug this shortfall.

"The euro has been strong for a few days now. It is a repeat of late-2002 and late-2003," said Trevor Dinmore, foreign exchange strategist at Deutsche Bank in London.

"When you have low liquidity at the end of the year, you have fewer flows and you see more dollar weakness."

The euro gained about a quarter percent on the day to hit a record high of $1.3646. At 6 a.m. EST it stood at $1.3622.

It also strengthened against the British pound to reach its highest level in one year at 70.76 pence.

Against the yen, the euro traded at 140.85 yen, just below last year's record high around 140.90 yen.

The Swiss franc briefly lost some ground after Switzerland's leading KOF indicator fell much more than expected in December, hitting 0.49 which compared with expectations for a 0.68 reading.

The franc moved away from levels near this month's nine-year high against the dollar. It traded at 1.1332 francs per dollar, compared with 1.1294 in early December.

EURO BENEFITS Global investors' worries about the U.S. current account deficit have depressed the dollar by some four percent against the yen and eight percent versus both the euro and the British pound so far this year.

Many analysts predict further losses if markets continue to question the future ability of the U.S. economy to attract enough foreign funds to plug its external deficit.

"The market has no interest in trying to buy dollars ...There are also not too many people actively dealing now," said Paul Mackel, currency strategist at ABN AMRO in London.

No major U.S. data was scheduled for release later on Wednesday.

In Europe, data from the GfK research group showed German consumers possibly in slightly higher spirits early next year as their willingness to buy hit a three-year high in December.

[YOUGOTIT]

Good the higher the Euro goes the cheaper US goods are in foreign countries and the higher they are so the export economies of the EU will start to goooooo south. Just what we want.

[expatguy]

[Nick Danger]

These stories are becoming ridiculous. Under any real-world scenario, we should expect relative currency valuations to wobble around a sine wave. That's exactly what we see happening. This is how markets home in on the right answer.

The people writing these stories act like they expect some "perfect" relative valuation to pop out and remain stable. That's not how any natural process works.

They might as well write, "Meaningless statistics were up seven points today in active chattering."

[wu_trax]

Same story every day. Hasn't all that there is to be said already been said?

[DustyMoment]

I can't help but believe that the EUro is being artificially propped up by anti-American forces who want to see the dollar collapse.

The problem is that the EUro is so over-valued now, that it is EUrope heading for a big collapse that will take the EUro and (hopefully) the whole EU with it.

[Dallas59]

I won't worry until I pay my bills in Euros.

[Brilliant]

The EU apparently has the goal of making its currency has expensive as possible. Personally, I would rather have a strong economy.

[wu_trax]

Right now it's probably all just speculations (but backed by fundamental data, i.e. the current account deficit of the US)

I would guess that there will be a small market correction back down to something between $1.25 and $1.30 in the next 4-8 weeks. But on the long term the dollar will have to fall further, not necessarily against the euro, more likely against the currencies in Asia, because that is where most of your trade deficit comes from.

[wu_trax]

The EU doesn't even have any say about the monetary policy. If they would they would try to make the currency weaker, because that would make economical sense.

[Jordi]

Financial Times

Dollar hits new low against euro

By Steve Johnson in London

Published: December 29 2004 11:41 | Last updated: December 29 2004 11:41

Link to Article [...]

David Gilmore, analyst at FXA, saw a “very good chance” of the dollar sliding to $1.45-1.50 against the euro by the time of February’s G7 meeting in London, with $1.60 a possibility before the dollar begins any sustained recovery. With concern mounting over the twin fiscal and external deficits of the US, Mr Gilmore saw a “growing consensus that the dollar downtrend has months more to play out”.

Clifford Bennett, chief strategist at FxMax, was even more bearish, seeing a “real risk of a blowout” in the US current account deficit in the first half of 2005 as the falling dollar forces US consumers to spend even more on imports to maintain the same standard of living. This could send the dollar plunging to $2 to the euro, he believed.

“The nightmare scenario is a falling US dollar starting a spiral of loss of investor confidence, generating an even lower dollar, which generates a further loss of investor confidence,” he said.

“In such a scenario the euro could hit $2 in 12-18 months and even the united effort of central banks including the Fed would have trouble controlling it. The fall out of investor panic flowing over to other markets could also be severe.

“I believe the Fed has already considered such a scenario, and that is why they are happy for the US dollar to decline naturally and steadily for some time yet. It is an attempt to deflate the greatest speculative market bubble of all time, the US dollar, before it bursts.”

I have said for months that monetary authorities around the world should do something about it.

[Jordi]

I have said for months that monetary authorities around the world should do something about it.

[reformedliberal]

" The people writing these stories act like they expect some "perfect" relative valuation to pop out and remain stable."

---

This is their same expectation vis-a-vis climate, social structure, species populations, taxation, social policy, etc, etc.

They sound hysterical, to me.

[wu_trax]

I don't think that that is ever going to happen. The central banks around the world would start doing something if things get too much out of hand. I doubt they can (or will even attempt to) stop the trend, but they can slow it down a little.
A global recession wont help anyone.

[Moonman62]

Under any real-world scenario, we should expect relative currency valuations to wobble around a sine wave. That's exactly what we see happening. This is how markets home in on the right answer.

The sine wave for the dollar is due more to the dollar policy set by the Executive branch than anything else. Greenspan usually follows the policy.

GWB has already sent out the first hints that the weak dollar policy is ending.