Sun, Feb 01, 2004 - Page 10 News List

Dollar is punished again, spurring on the euro and yen

AFP , LONDON

The dollar took a beating here Friday, punished by weaker-than-expected growth figures in the US that triggered a fresh spurt in the euro.

The single currency was trading at US$1.2458 after US$1.2405 in New York late on Thursday.

Against the yen the dollar in late-day deals was at ¥105.78 after ¥105.95 on Thursday.

Annualized US economic growth slowed in the fourth quarter of last year to 4 percent from the previous quarter's 8.2 percent. While the result remains above trend, it was short of expectations of a 4.9 percent gain.

"The dollar had largely built in a strong outcome for GDP today and for this reason it is likely to sell off on the back of the data, while bonds will benefit," said Mitul Kotecha, currency strategist at Credit Agricole Indosuez.

The market had focused hard on the GDP data in light of Wednesday's relatively hawkish statement from the Federal Open Market Committee, which appeared to point to prospects for US interest rate hikes and pushed the dollar sharply higher.

After the GDP-inspired dollar sell-off, the Chicago Purchasing Managers Index helped cage dollar bears.

The Chicago PMI index rose for a ninth straight month to 65.9 percent in January, the highest since July 1994 and above expectations of 61.4 percent.

The dollar's medium-term fortunes will depend heavily on the outcome of next weekend's meeting in Florida of finance ministers from Britain, Canada, France, Germany, Italy, Japan and the US, analysts said.

But many economists doubt the G7 session will reverse the downward course of the dollar.

Any strategy to shift the burden of the dollar's adjustment more toward Asian currencies was unlikely to be agreed upon, they said, given resistance from US Treasury Secretary John Snow.

"The United States will stress the importance of improving underlying fundamentals, which will not only provide currencies with an appropriate guide in the longer term, but will also serve their individual economies as well as global growth," predicted Hans Redeker, head of global FX strategy.

The euro was changing hands at US$1.2458 from US$1.2404 late on Thursday in New York, ¥131.72 (¥131.42), £0.6836 (£0.6829) and 1.5677 Swiss francs (Sf1.5625).

The dollar stood at ¥105.78 (¥105.95) and 1.2590 Swiss francs (Sf1.2596).

The pound was at US$1.8215 (US$1.8164), ¥192.72 (¥192.44) and 2.2927 Swiss francs (Sf2.2880).

On the London Bullion Market, the price of an ounce of gold stood at US$399.75 against US$405.70 late on Thursday.

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