The US dollar rose to a three-month high against the euro on Monday amid further signs that market sentiment is warming towards the greenback, temporarily at least.Posted on 02/07/2005 2:11:32 PM PST by RWR8189
The US dollar rose to a three-month high against the euro on Monday amid further signs that market sentiment is warming towards the greenback, temporarily at least.
The dollar moved markedly higher in US trade, with dollar bulls pointing to the unveiling of the US budget for fiscal year 2006, which reiterated President George W Bush’s intention to begin dealing with the burgeoning fiscal deficit.
However while this appeared to be evidence of the “voice of fiscal restraint” alluded to by Federal Reserve chairman Alan Greenspan in a keynote speech on Friday, the budget contained little new.
Paul Mackel, currencies strategist at ABN Amro, instead saw signs that the breaching of a key technical level of $1.283 on euro/dollar was prompting fund managers to sell euros and buy dollars to lock-in the remnants of the gains they made on the dollar’s break lower last autumn.
“Whereas speculators went into Greenspan’s speech quite flat, real money investors were long euros,” he said. “There are some signs that fund managers are now throwing in the towel to some extent.”
The dollar was continuing the upward path set in train by Mr Greenspan, who saw signs that the US current deficit may soon start to come under control.
With the weekend’s G7 conference proving a damp squib for the forex market - the closing communique merely repeating the words of 12 months’ ago that flexibility in exchange rates is “desirable” but excess volatility is “undesirable” - the market saw no reason to alter its bullish dollar view.
“Chairman Greenspan’s perceived attempt to play down the concerns over the sustainability of the US current account deficit has ensured that the focus of the foreign exchange market remains firmly on dollar-favourable cyclical developments rather than on dollar-negative structural concerns,” said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi.
This allowed the dollar to strengthen 0.8 per cent to $1.2754 against the euro, its strongest level since November 3, 0.5 per cent to Y104.98 against the yen, 0.9 per cent to $1.8565 versus sterling, and 0.6 per cent to C$1.2571 against the Canadian dollar, its best level since October.
■ The passing of the G7 appeared to kill off any remaining lingering hopes of an imminent renminbi revaluation by China, causing the discount on 12-month non-deliverable renminbi forwards to narrow to a one-month low of 3,550 points, implying a rate of Rmb7.923 in 12 month’s time, against Rmb8.278 today.
The perception of “no change” from China was heightened further by comments from Zhou Xiaochuan, the governor of the People’s Bank, who said China’s current account surplus was only about $20bn, less than 2 per cent of GDP, and was “basically balanced”.
“Statements by PBOC governor Zhou Xiaochuan and his colleagues make it quite clear that the Chinese government’s prioritisation of domestic economic objectives continue to preclude any imminent adoption of the G7’s recommendations,” said Neil Mellor at Bank of New York.
■ The Slovak koruna hit a fresh lifetime high of SK37.995 to the euro, before retreating a fraction to SK38.045 as the central bank intervened for the second time in a week to slow the currency’s rise.
The failure of the National Bank of Slovakia to signficantly weaken the koruna led UBS to speculate that the NBS may have to re-think its strategy, either intervening in greater quantities or instead abandoning attempts to slow koruna appreciation until it has settled at a firmer level.
The Polish zloty hit a new two-year high of 3.9520 zlotys to the euro as Jerzy Hausner, the economy mininster who had repeatedly raised concerns about zloty strength, resigned from the governing party.
USA has unemployment rate of 5.4%; Germany has 11.5%; France over 9%; most of the remainder of Euro using Europe has huge unemployment rates, yet the dollar is down againt the Euro most of the time? Go figure. 20 different countries using the same currency vs. one; and they are socialists with huge unemployment. Go figure.
Make that 5.2% :)
I knew it was somewhere around there. Couldn't remember exactly. I stand corrected. Thanks.
We're DOOOOOOOOMED!!!!! Oh... wait...
It has nothing to do with fundementals. It is all rats. there is just a lag due to the money supply and all the arbitrage that has been going on. It was all nonsense.
All aboard for the ride back up? The bands are turning bullish.
No chart is showing,just a box. :-(
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