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		Home Page Mortgage News You Can Use Euro Falls as EU Wants Weaker Currency By Kyle Peterson, 2/9/2004 CHICAGO (Reuters) - The euro fell against the dollar on Monday after a published report said European Union finance ministers will discuss "all possible ways" to curb euro gains, raising the prospect of possible dollar buying. Traders said the Dow Jones report, which quoted an unnamed European Union official, triggered a mild sell-off in the euro. The ministers were due to meet on Monday in Brussels. The euro earlier scored a two-week high against the dollar as markets determined that a weekend warning by the Group of Seven economic powers against "excess volatility" in exchange rates did not signal imminent, coordinated dollar-buying intervention. Those gains now have completely reversed. "Basically we have these headlines from Dow Jones that the EcoFin will discuss all possible ways to stop the rise of the euro. ... Since then, the euro has ground lower and lower," said Phillip Capone, vice president for foreign exchange derivatives at Fortis Bank in New York. So far, markets have largely ignored the communique, issued after a G7 meeting in Florida, which said: "Excess volatility and disorderly movements in exchange rates are undesirable for economic growth." "I don't think people are interpreting that as raising the risk of coordinated central bank intervention to halt the dollar's slide," said Alex Beuzelin, foreign exchange analyst at Ruesch International in Washington, D.C. "While the G7 statement could prompt a pause in the dollar's downward trend, it's not going to halt it," he said. "I think that's why you've seen the greenback weaken." With the G7 risk out of the way, markets were expected to resume dollar selling on the view that the U.S. current account deficit is unsustainable and that Washington is content to see the greenback fall to correct that imbalance and boost economic growth ahead of November's presidential elections. Monday's U.S. economic calendar was light, so traders will switch their focus to Federal Reserve Chairman Alan Greenspan, who is due to give his semi-annual testimony on monetary policy before the House Financial Services Committee on Wednesday. "If it's more hawkish than expected, it could have more impact on the dollar than G7 ever could have," said Daniel Katzive, currency strategist at UBS in Stamford, Connecticut. "We think he's going to reinforce the message sent by the last FOMC statement that at some point policy will become less accommodative, but that the Fed can be patient," he said. The U.S. central bank's policy-setting Federal Open Market Committee at its last meeting on Jan. 28 changed the wording of its stated view of the economy, saying it could be 'patient' in changing currently loose monetary policy, and dropping a pledge to maintain it for 'a considerable period.' In midday U.S. trade, the euro was down 0.39 percent at $1.2655. The dollar was up 0.29 percent at 105.75 yen. Sterling rose 0.51 percent to $1.8555. The euro earlier raced as high as $1.2761. Sterling offered the biggest drama, scoring an 11-year high of $1.8628. The Australian dollar was up 0.84 percent at US$0.7767. Currency analysts said the euro had room to rise further against the dollar, putting more pressure on European companies to adjust to more difficult export market conditions. COMPROMISE ON CURRENCIES Many traders viewed the G7's reference to exchange market volatility as a change of emphasis to counter the impact of the G7's call in Dubai last September for "more flexibility" in exchange rates. That statement triggered a 10 percent drop in the dollar against the euro, ringing alarm bells among euro zone officials. Analysts said the shift in wording was likely a compromise between the U.S., which backs market flexibility that allows for growth-supporting dollar falls, and Europe, which wants to prevent excessive market movements from hurting its recovery. The G7 also narrowed its Dubai call for currency flexibility to countries "that lack such flexibility." Traders assumed the shift was aimed at China and other Asian countries that peg their currencies to the dollar, although speculation simmered over whether Japan, which has engaged in massive dollar-buying intervention in the past year, was also under fire. (Additional reporting by Gertrude Chavez in New York)   Back to Original Article: Mortgage News You Can Use   Continue with: Treasuries Higher on Hopes of Demand
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