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Tue, Jan 11, 2005 - Page 12 News List

US dollar trades higher against euro

RENEWED STRENGTH?The dollar has rallied against the euro, on expectations the Fed will continue to raise rates and news that policymakers will address the deficit

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The dollar traded near its strongest in almost seven weeks against the euro in Europe on speculation the Bush administration will act to reduce the record US deficits amid signs of faster economic growth.

US Treasury Secretary John Snow said on Jan. 7 that policy makers "want to do things to sustain the strength" of the dollar, in part by reducing the budget deficit. The US currency is up 4.5 percent against the euro since hitting a record low on Dec. 30, benefiting from expectations the Federal Reserve will raise interest rates, widening the yield advantage over Europe.

"There are two potentially important changes in nuance from the US helping the dollar," said Richard Yetsenga, a currency strategist in Hong Kong at HSBC Holdings Plc. "One is that the comfort level for a weaker dollar seems to be less than before; the other is the Fed is perhaps becoming more hawkish" on rates.

Against the euro, the dollar traded at US$1.3076 at 6:43am in London, versus US$1.3053 late on Jan. 7 in New York, according to electronic foreign-exchange trading system EBS. It also was at ?104.69, from ?104.76. The dollar may rise beyond US$1.29 per dollar in the next several days, Yetsenga said.

Trading may be less than usual in the daily US$1.9 trillion currency market because of a Japanese holiday today.

The dollar last week rose 3.8 percent against the euro and 2.1 percent versus the yen. The advance against the euro was its second-biggest since the European currency was introduced in January 1999, after a gain of 4 percent in the week ended March 16, 2001.

Almost 40 percent of the 91 traders, strategists and investors polled from Tokyo to New York on Jan. 7 advised buying the dollar against the common European currency, about triple the number from a week earlier.

The US currency's six-day rally against the euro may stall on expectations a report this week will show the US trade deficit was the third-widest on record.

A technical indicator some traders use to measure trends also signaled the dollar was poised to weaken. The currency's 14-day relative strength index against the euro on Jan. 7 was at 29.

The index is a gauge of momentum in a given period. A level above 70 or below 30 suggests a change in direction.

"The trade data may remind people of the US deficit problems that were the cause of the dollar's decline," said Minoru Shioiri, senior manager of foreign exchange in Tokyo at Mitsubishi Securities Co, a unit of Japan's second-biggest lender. "It's too early to say the dollar's down-trend has reversed" and it may fall to US$1.32 per euro this week, he said.

Investors pushed the dollar to a third year of losses against the euro and yen last year on concern the nation's trade deficit will outstrip foreign demand for US assets. The deficit in the current account, the broadest measure of trade, reached a record US$164.7 billion in the third quarter.

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