Traders said they expect the dollar to reach new highs against the euro early this year after the US currency finished 1999 with a 16 percent gain against the common European currency.
Expectations for further dollar strength against the euro in coming days came despite many economists' predictions that European growth will pick up and boost the euro in the months ahead.
One problem is that many investors piled into euros early in the year on the misplaced bet that US growth would tail off and markets here would lag behind those in Europe. Now, they're left with more euros than they'd like. "Many people are still saddled with [euros] from way up there" when the currency had a much higher value, said Jeffrey Yu, senior dealer at Sanwa Bank Ltd in New York.
The dollar traded at US$1.0052 per euro, up from US$1.0087 in late New York trading Thursday. Yesterday, the US currency touched a 2-week high of US$1.0020 per euro, not far above its record high of 99 cents, reached Dec. 3. The euro, one year old today, reached as high as US$1.1899 on Jan. 4 before beginning its steady slide this year.
Against the yen, the dollar slipped to ?102.13 yesterday, from 102.49. The euro fell to ?102.90, from ?103.36. The euro's record low against the yen was ?102.05 on Dec. 6.
Measured against the collective currencies of its major trading partners, though, the dollar has slipped only about 1.3 percent since the start of last year, according to a Federal Reserve index.
The yen has been the strongest of the three major trading currencies -- up 11 percent against the dollar last year and 29 percent against the euro.
Foreign exchange turnover was negligible Friday, as some investors and traders were reluctant to make trades that won't settle until the year changeover. Settlement could be disrupted if computers misread 2000 as 1900.
The US currency could slip if investors unload dollars they had bought previously as a hedge against any year 2000 computer or economic disruptions, traders said.
"There may be some dollar selling as countries are doing well through the transitions" to the year 2000, said John Cholakis, a trader at Dai-Ichi Kangyo Ltd.
Japan's Prime Minister Keizo Obuchi, speaking shortly after midnight in Tokyo, said no Y2K computer-related problems had been reported.
The currency market also showed little reaction to Russian President Boris Yeltsin's surprise resignation earlier yesterday.
While the euro might have been hurt by any concern over the handover of power, the subsequent rally in Russian financial markets offset those worries, said Sanwa's Yu.
To be sure, the euro is not without its partisans heading into the new year. Many analysts expect it to rebound against the dollar as European economic growth is expected to accelerate, luring investors to the region's assets.
"January may see a good start for the euro," said Steven Post, a currency trader at Banque Paribas Nederland in Amsterdam.
The euro could rise as high as US$1.10 in the first quarter of 2000, he said.
In the most recent indication of euro-zone growth, the jobless rate in France, the euro zone's second largest economy, fell in November to its lowest level in seven years, the French government reported yesterday.
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