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You Can Use Dollar Surrenders Gains
Reuters
Thursday, January 29, 2004; 7:40 AM By Natsuko Waki LONDON
(Reuters) - The dollar retraced some of its earlier gains against the euro on
Thursday after rallying to a one-week high following a signal from the U.S. Federal
Reserve it was preparing the ground for eventual rate rises.
The Fed left rates steady on Wednesday but surprised many in the timing of
its decision to drop its pledge to keep rates low for a "considerable period,"
instead saying it "can be patient" about lifting its key interest rates. U.S.
equities and bonds dived but the move proved a much-wanted boost for the dollar
which has been dogged by the outlook for continued low interest rates. "The
change in the Fed's language brings forward rate hike expectations. It's positive
for the dollar because it reduces rate differentials between the U.S. and other
countries and it brings in flows," said Mark McFarland, currency strategist at
UBS. "But this was pretty much a bear market rally. The U.S. current account
is not fully funded and it takes a substantial rise in the U.S. rates or export
growth for the dollar to turn around." By 7:30 a.m. EST, the dollar was
trading at $1.2490 per euro after rising to a one-week high of $1.2416 earlier
in Asia. Against the yen it was at 106.16 yen, above this week's three-year low
around 105.45. TRICHET, GREENSPAN, SNOW The market was keen to see
how Group of Seven finance ministers would react to the dollar's latest recovery
when they meet next week in Florida. European Central Bank President Jean-Claude
Trichet will speak in Madrid at 8 a.m. EST. He has said the ECB dislikes excessive
volatility and too fast changes in exchange rates. Fed chairman Alan Greenspan
and U.S. Treasury Secretary John Snow are also speaking at 10:30 a.m. EST in Washington.
"The move down in the euro/dollar reduces concerns among euro zone officials
about the stronger euro and they will be less inclined to push hard to curb euro
strength at the G7," Niels Christensen, currency strategist at Societe Generale
said. After meeting Trichet, Spanish economics minister Rodrigo Rato said
that big currency moves could harm the global economy. Swiss National Bank
governor Jean-Pierre Roth said the dollar was generally volatile currency but
that Switzerland could not stabilize it. For Japan, it was business as
usual. Vice Finance Minister Masakazu Hayashi said Japan was not aiming
to target specific currency levels but warned recent movements were rapid and
Japan would take action. U.S. jobless claims, due at 8:30 a.m. EST, will
be closely watched for clues on the state of the labor market. Minutes from the
December Fed meeting are also due. Continue
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