Dollar Starts 2005 with Slight Gains

Reuters ^ | January 3, 2005 | Justyna Pawlak

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LONDON (Reuters) - The dollar rose slightly in the first trading session of 2005 on Monday, gaining more than a cent from recent record lows against the euro as investor selling paused ahead of U.S. economic data this week. However, analysts said persistent imbalances in the U.S. economy will likely continue to weigh on the dollar in 2005 after pushing the euro up about 8 percent to record highs last year.

Later on Monday, the U.S. Institute of Supply Management's manufacturing survey is due. A Reuters poll forecast the index for December would edge up to 58.1 from 57.8 in November. U.S. non-farm payrolls data is due on Friday.

"The market has been so negative versus the dollar that we would need a very poor outcome on the data to hurt it. Otherwise, people will say 'we already sold the dollar'," said Peter Fontaine, currency strategist at KBC in Brussels.

"So the dollar is torn between two stories, one in the short term, ahead of the data, and the other long-term. In the long-term, we still have problems, the current account and trade deficits in the U.S."

Fontaine added that currency trading was erratic on Monday, with markets in Tokyo and London closed for holidays.

At 0915 GMT the dollar traded at $1.3530 per euro, a quarter of a percent up from its December 31 close. Earlier in the session it rose as far as $1.3389, compared with last week's record low of $1.3667.

The dollar was also a quarter percent up at 102.76 yen and 1.1410 Swiss francs. This compared with last week's nine-year low against the franc and its lowest level since January 2000 against the yen set in December last year.

The greenback traded more than half a percent up versus Australian dollar.

The euro was little moved by news that the euro zone's manufacturing sector picked up speed in December for the first time in five months. The Reuters/NTC Research Eurozone PMI rose to 51.4 from a 14-month low of 50.4 in November.

However, the survey also showed manufacturers blaming the strong euro for subdued growth.

The euro extended its decline from last week's record high versus the yen to trade at 138.86 yen, compared with a record high of 141.61 yen last week. Eric Chong, a technical analyst with Standard Chartered Bank, said the euro's decline on Monday was driven by the euro/yen correction.

DEFICITS HANG OVER DOLLAR

In addition to losing ground versus the euro in 2004, the dollar also shed roughly eight percent against the Swiss franc, and seven percent against the British pound and Canadian dollar.

Investors' major concern is whether the United States can continue to attract enough foreign capital to plug its current account deficit, which is now running at 5.6 percent of gross domestic product.

Without adequate inflows, the current account deficit is a natural drain on the greenback.

But markets are also watching other signs from the U.S. economy, hoping to glean clues on the Federal Reserve's future interest rate policy. More Fed rate hikes would likely give the dollar a boost.

Later this month, investors will be waiting for a meeting of the Group of Seven industrialized nations in London at the start of February, eager for hints on how global policymakers are reacting to the dollar's weakness.

The negative sentiment for the dollar has been exacerbated by expectations that the world's economic powers are not likely to combine forces yet to stem the currency's decline.

[Jumper]

The Old European nations are mired in double-digit unemployment, Zero economic growth (of course that is their target:), a lack of consumer class (due to high Value Added Taxes), and a ruling burearcy being imposed from the French elite system with no accountability the very people it purports to represent. Only the politicians, bankers, and a few business owners will benefit from a high euro and the people will continue to support their nations, the EU and anything unAmerican due to the European MSM.

If the value of the dollar was really based on anything other than proping up Europe's Euro currency it would be the dollar valued at 135 to the Euro. Europe is economically dead due to socialism and government directed economies.