Sun, Apr 14, 2002 page10

• US dollar rises against euro and yen

  • BLOOMBERG
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  The dollar gained against the euro and yen Friday on signs growth is rebounding faster in the world's largest economy than in Europe or Japan.

  "The US economy is leading the rest of the world into this recovery," which may boost demand for dollar-denominated financial assets, said Adrian Cunningham, who helps oversee US$150 million at Abbey National Plc's Talorcan hedge fund in Glasgow.

  The dollar climbed to Japanese yen 131.93, from Japanese yen 131.49 Friday, up 0.3 percent this week. It strengthened to US$0.8794 per euro from US$0.8824, and was little changed for the week, after the government said retail sales rose 0.2 percent last month.

  While the growth in sales was less than the 0.4 rise projected, it outpaced the latest figures from Germany, Europe's largest economy. German retail sales fell 1.5 percent in February, a third monthly decline, the Federal Statistics Office said on Friday.

  The US economy grew in the last three months of 2001 at a 1.7 percent annual pace. Growth probably expanded at a 4.5 percent rate in the first quarter, according to the latest Blue Chip Economic Indicators consensus. Europe's economy shrank 0.2 percent in the fourth quarter from the previous three months and probably grew about 0.5 percent in the first quarter, the European Commission said.

  Japan's economy shrank for three straight quarters last year in its worst post-war recession. It contracted at a 2.2 percent annual pace in the October-to-December period. A government index of US producer prices rose in March for a third month, and left intact expectations the Federal Reserve will raise interest rates from a 40-year low of 1.75 percent in June, traders said.

  The dollar was little changed after the 1 percent climb in the overall rate because it reflected a temporary surge in oil prices, analysts said. Excluding food and energy, prices rose 0.1 percent, as expected.

  "I don't think its troubling from a inflation standpoint at all" for the dollar, said Tom Benfer, a director of foreign exchange at Bank of Montreal.

  The US currency held its gains after a University of Michigan survey of consumer confidence was weaker than expected in April. Preliminary confidence slipped to 94.4 from 95.7 in March.

  That compares with forecasts it would gain to the highest level since December 2000 at 96.1, according a Bloomberg News poll of economists.

  Dollar buying was also fueled because traders had in recent weeks amassed bets the currency would fall against the euro, strategists said. They bought back the dollar after it failed to weaken past US$0.8850 per euro several times in recent days.

  Commodities Futures Trading Commission figures show that speculative investors had built up the biggest net short dollar position against the euro in six months.

  ``Data suggests the market is still relatively short of dollars, and is recouping positions'' in the currency, said Dustin Reid, a currency strategist at UBS Warburg LLC in Stamford, Connecticut.

  The yen's decline against the dollar was triggered by comments from a Japanese Ministry of Finance official, who said the government wants to halt a rally that pushed the currency to a three-week high.

  "It's not likely we will see a situation that warrants a stronger yen," said Zembei Mizoguchi, head of the ministry's international bureau. That came after similar comments from Mizoguchi on Thursday and Finance Minister Masajuro Shiokawa on Wednesday. A weaker currency helps boost the earnings of exporters and fight Japan's third recession in a decade.

  "We're going to continue to see yen weakness against the dollar" as Japanese officials make similar comments, said Lara Rhame, a foreign-exchange economist at Brown Brothers Harriman & Co. It's also "what I would expect based on the relative performance of the economies," she said.

  Shiokawa said on Wednesday the currency "probably won't" strengthen past Japanese yen 130, sparking speculation the government may sell yen to stop further gains. The last time Japan intervened in the currency markets it sold Japanese yen 3.2 trillion (US$24 billion) for dollars and euros on seven days in late September, driving the currency down by more than four yen in two weeks.

  Declines in the yen accelerated after Japanese stocks fell, pushing the Nikkei 225 average down 1.6 percent, to below 11,000 for the first time in five weeks. Japan's index of bank stocks also fell, for a two-day decline of 4 percent, after the Financial Services Agency decided not to pump public funds to banks to help them write off non-performing loans.

  "There will be no recapitalization for the banks," said Reid at UBS Warburg. Their stocks "have a high correlation with the yen."
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