Print

Mail

wiki links

Greenback surges after statement by US Fed chairman

The dollar surged to a six-month high against the euro and rallied against the Swiss franc and British pound on growing confidence the US economy will recover from recession in coming months.

Expectations for a rebound climbed after Federal Reserve Chairman Alan Greenspan said yesterday the economy is showing signs of growth, fueling the dollar's biggest weekly gain against the euro in ten months. Reports this week including Tuesday's leading economic indicators were stronger than forecast.

"People are feeling more confident saying the US is going to be out of recession and out first," said Brian Taylor, head trader at Manufacturers & Traders Trust Co in Buffalo. "The US is definitely the place" to invest in coming months, he said, adding that he's betting the dollar will keep rising against the euro.

The dollar gained to US$0.8640 per euro, from US$0.8782 late yesterday in New York, for its biggest rise in almost five months.

It reached the strongest level since July 18. Traders said the euro's drop accelerated as it breached the US$0.8740 level, its low in November and December, triggering pre-set orders to sell.

The US currency also had its biggest gain in almost four months against the British pound and in a month against the Swiss franc. On the week, the dollar gained 1.4 percent against the yen and 2.4 percent versus the euro, rallying a third week against both.

Greenspan, in a speech yesterday to the Senate Budget Committee, said a "significant" boost to income and spending may come from a drop in business inventories. Signs of a US rebound may persuade investors to buy dollar-denominated assets.

The US index of leading economic indicators rose a third month in December, evidence the recession may end by mid-year.

Twenty-one of 24 primary dealers, which trade government bonds with the Federal Reserve, predict the Fed will leave its benchmark rate at 1.75 percent this month. A week ago, only three made that call.

"Greenspan is saying the glass is half full -- the market has taken that as an indication the worst is over for the US," said Scott Barlass, director of currency at Abbey National Asset Managers in London, where he oversees ?14 billion (US$20 billion). He expects the dollar to continue rising the next three months.

Economists predicted last month that the US would resume growth in the second quarter, after contracting three straight quarters. Next week, the government is expected to report US gross domestic product shrank 1.1 percent in the fourth quarter.

The euro has slumped 2.5 percent so far this month, extending its history of declining each January since its debut at the start of 1999.

This year, some investors may have piled into the euro after the Jan. 1 introduction of euro notes and coins was deemed a success, and are now bailing out to minimize losses, said analysts.

``People are determined not to make the same mistakes that seem to have been made every January,'' said Robert Millns, head of foreign exchange for North America at HypoVereinsbank AG, Germany's second-biggest bank.

The euro's drop Friday was steepest against the yen, with a 1.6 percent decline to ?116.28 from ?118.27 on Thursday.
This story has been viewed 1667 times.