Posted on 06/13/2005 2:00:09 AM PDT by RWR8189
LONDON (Reuters) - The dollar hit a nine-month high against the euro on Monday, extending recent gains made after upbeat U.S. data and comments from Federal Reserve chief Alan Greenspan fanned expectations of more U.S. interest rate hikes.
Finance ministers from the world's rich nations (G8) during their weekend meeting in London kept up pressure on China to move toward more flexible exchange rates, but produced no clues as to the timing.
Following last week's better-than-expected U.S. trade data and Greenspan's comments that the economy was on a "firm footing," the market is looking to see if this week's figures would reinforce expectations of higher U.S. rates -- which have driven the dollar up by 10 percent versus the euro this year.
"After the trade data on Friday the dollar is continuing its rise. The market is afraid of the possibility of the Fed interest rates going higher and at the same time the ECB is about to cut rates," said Benedikt Germanier, currency strategist at UBS in Zurich.
The euro had fallen to $1.2066, its lowest level since early September 2004, before pushing back to $1.2090 by 0845 GMT to stand at 0.3 percent down on the day.
The dollar held steady at 108.60 yen, short of key 108.90/109 technical levels, after rallying 1.2 percent on Friday in its biggest daily gain in more than four months.
The week will also see European Union leaders debating the future of the bloc's political and monetary integration after France and the Netherlands voted "no" to a new EU constitution.
"There is concern about a lack of conviction on the political process and a lack of coordination of monetary and political policies. But the euro's loss is driven by weak data and the summit won't be able to change this," Germanier said.
"People have bought a lot of dollars but long-term investors are still long euro dollars. There may be more pain to come."
US VS EURO ZONE
The Fed is widely expected to raise rates by a quarter percentage point at its next policy meeting on June 29-30, which would be its ninth straight rate rise and take its funds rate to 3.25 percent.
The outlook for higher U.S. interest rates has attracted foreign capital into the country, offsetting concerns about the huge U.S. current account deficit.
U.S. April capital flows data, due on Wednesday, could add to evidence the United States is comfortably financing its trade deficit.
U.S. producer and consumer price indices, due on Tuesday and Wednesday separately, are expected to give clues for any signs of an uptick in prices, which could lead the Fed to raise rates at an even faster pace to ward off inflation.
In contrast, the euro zone's sluggish economy is raising expectations the European Central Bank's next move may be an interest rate cut.
ECB Chief Economist Otmar Issing has said he could not rule out a rate cut. The central bank has kept rates at 2 percent since June 2003.
"I think this is only the beginning of the euro's decline," said a dealer at a Japanese bank. "The market's big focus has shifted from the U.S. twin deficits to the euro zone's structural woes."
The Euro never had a good market behind it. The interest rates are the biggest factor for traders on the FOREX.
"The market's big focus has shifted from the U.S. twin deficits to the euro zone's structural woes."
The twin US deficits are a poor excuse to short the dollar.
Soros and Buffet get their @$$es handed to them.
"The twin US deficits are a poor excuse to short the dollar."
No, but a strong dollar doesn't help reduce our massive trade deficit or help our exporters either... kind of a catch 22 situation really.
Currency traders don't care about trade deficits, which the US has had every year since 1975.
Long term I would definitely go with the euro over the dollar. The euro was rising too fast and a correction was to be expected.
And I've got R&R coming in two months...
Yessss!
Bizarre that you should mention that. I stayed in that very hotel as a kid when visiting the Bavarian area with my family one summer when we were stationed in Italy. So the Patton's still there, eh?
That place has been around a long time. I was about twelve years old when we stayed there.
You are so right.
"Serves them right. The Euro-worshipping moneytraders thought they'd take down history's strongest economic powerhouse, the United States. This is one area where President Bush does not get enough credit. He guided our economy through some very rough storms in the midst of vast collectivist opposition, and we're coming out stronger than before. Bravo to George W. Bush on the economy."
Darn Tootin my friend!
never ceases to amaze me how everyone tools on Bush for a crappy economy when if not for him after 9/11 we would be a third world nation by now. Imagine if Kerry won? we would have been completely Carterized by now
"But the Euro's loss is driven by weak data and the summit won't be able to change this," Germanier said."
Europe's economies have been weak for years now. What a bunch of crap. It does my heart good to see traders on the wrong side of the deal. It's probably too much to hope that Soros and Buffet are hurting a bit.
In addition, the budget deficit is down 62 billion from 412 billion to 350 billion.
It may be a way to inflate the US money supply; Although, I doubt that Casino could do it with previously uncirculated dollars.
A couple of decades and five years ago, when the Ayatollah Khomeini became leader of Iran, he used intaglio printing presses that we sold to the Shah to print near perfect $100 supernotes. The FBI and Secret Service were befuddled. The Treasury Department did some calculations that the Iranian printing presses could only print so much money a minute, only so much they could print in a year. Treasury determined the stealing Mullahs of Iran could not effect the money supply, so they were not too concerned about the nation and dollar's stability. However, it does explain why the dollar has been redesigned.
From Secrets and Lies :
Digital Security in a network world
Bruce Schneier
How can the dollar be rising? Everyone knows America is doomed.
Simple. The EU is run by complete PC idiots even more socialist than our government. And when they tried to cram their nation-destroying constitution down the throats of the voting peasants...they got an unpleasant surprise...with "market sentiment" consequences thereto. I expect the Euro to go still lower. Maybe another 5 to 10 cents, particularly with bad economic news.
But those "market sentiment" reactions will eventually wash out, and fundamentals should return to control...whichever way they happen to be heading at the time. So far, these market sentiments haven't corrected for the bulk of the last four year's decline of the dollar.
America is only doomed if it willfully ignores the fundamentals of trade.
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