Forum Archive Index - May 2002

[nickk@quicksilver.net.nz]

Again from Bloomberg.  Before you all have a go at me I am just imparting
information!

Dollar Reaches 14-Month Low vs Euro; U.S. Rebound Seen Slowing
By Mark Tannenbaum


New York, May 29 (Bloomberg) -- The dollar fell to a 14-month low against
the euro as a slowing U.S. economic recovery prompted some investors to
seek higher returns in Europe. 

``There are better places in the world to park your money'' than in the
U.S., given the country's low interest rates and concern stocks may fail to
rally in months ahead, said Dori Levanoni, head of currency research at
First Quadrant in Pasadena, California. The firm, which has $2 billion in
foreign exchange under management, is betting the euro and nine other
currencies will gain against the dollar in the next few months, he said. 

The dollar sank to 93.62 cents per euro from 92.86 late yesterday and
touched its weakest level since March 9, 2001. It traded at 124.43 yen,
little changed from 124.57. The dollar has shed 4 percent against the euro
and 3.3 percent against the yen in May. 

The currency's losses quickened after the dollar fell past the 93.30 level
that had been its weakest point in the days after the Sept. 11 terrorist
attacks. The dollar may weaken to 96 cents per euro, where it sank to in
January 2001, some analysts said. 

Government and industry reports yesterday dimmed the outlook for the U.S.
rebound: An index of consumer confidence rose less than projected this
month and other data showed Americans spent less than forecast in April. 

Concern that consumer spending, which accounts for two-thirds of demand in
the economy, may fade helped spark declines in U.S. stocks and erode demand
for dollars. Major indexes extended losses today. The government also said
Friday that the economy grew less quickly in the first quarter than
previously announced. 

Money Flows 

The money ``flows into North America have slowed considerably'' because of
signs the recovery is losing steam, said Stuart Wigfall, who helps oversee
$1 billion at Fuji Investment Management Co. Europe Ltd. in London. That
damped demand for the dollar, and may drive it to $1 per euro in coming
months, he said. 

More than $1 billion per day flows from the U.S. to foreign hands as a
result of the U.S. current account deficit, which reached a record $417.4
billion in 2001. That leaves the currency vulnerable when international
investors decide to send their money to other countries. 

Foreigners sold a net $16.9 billion of U.S. Treasury securities the first
two months of the year, according to the most recent Treasury Department
data. They also added $2.1 billion in U.S. stocks in February, the smallest
amount since dumping a net $11.5 billion worth in September. 

The world's biggest economy will probably expand at a 3.1 percent clip this
quarter, according to the latest Blue Chip Economic Indicators' consensus
forecast. That compares with 5.6 percent growth in the first three months
of the year and would bring U.S. growth closer to Europe's. The 12-nation
euro region will likely accelerate to a 2.8 percent rate of growth in the
second quarter, after an estimated 2 percent rate in the first, the
European Commission forecasts. 

Fed vs. ECB 

Investors' doubts about the strength of U.S. growth are pushing out
expectations for when the Federal Reserve will raise its 1.75 percent
interest-rate target. Rates are higher in most other developed economies,
lifting returns on deposits in those currencies. 

Canada's benchmark rate is 2.25 percent, the U.K.'s is 4 percent, and the
euro region's is 3.25 percent. 

The rate on the Euribor interest-rate futures contract for June slipped 1
basis point today to 3.54 percent, or 29 basis points above the central
bank's key rate. That indicates some traders expect the European Central
Bank to lift its benchmark rate next month. 

Fed fund futures, meanwhile, show traders are pricing in almost a 60
percent chance of a rate increase in August. 

Euro Boost 

Royal Bank of Scotland Financial Markets, a unit of the second-biggest U.K.
bank, predicts a dollar decline to 97 cents in December, on the view that
investors will not be as enamored of U.S. assets as they were in recent
years. That would put the dollar at its weakest since March 2000. 

``We've just got to have some adjustment in the dollar'' to reflect that,
said Robert Blake, senior economist at the bank. 

A dropping dollar helped push the price of gold to the highest in 4 1/2
years, by making the metal, which is priced in the U.S. currency, cheaper
for buyers using other currencies. 

Gold for August delivery rose $1.30 to $326.80 an ounce, the highest
closing price for a most-active contract since October 1997. 

The euro also got a boost from reports suggesting a pickup in Europe's
economy, analysts said. 

French business confidence rose to an 11-month high this month, a report
showed. The Ifo index of German business confidence had its first gain in
seven months, according to a report yesterday. 

The common European currency gained for a fifth day in six against the yen,
climbing to 116.34 yen per euro from 115.65 yesterday. 

In other trading, the dollar fell to 1.5674 Swiss francs from 1.5741. It
was little changed at $1.4624 per British pound from $1.4593, and against
the Canadian dollar at C$1.5342 from C$1.5310. 

 
 

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