Dollar Shoots to 7-Month High Against the Euro
Feb 2010 | 12:20 PM ET
The dollar rose to a fresh seven-month high against the euro Thursday amid growing concerns over the fiscal health of debt-laden euro zone countries.
European Central Bank President Jean-Claude Trichet predicted many members in the bloc will have large, sharply rising fiscal imbalances.
The ECB chief spoke at a news conference after the ECB left its benchmark lending rate unchanged at 1 percent. Trichet said high public debt and deficits would place additional burdens on monetary policy.
Worries over debt levels in Spain and Portugal have increased as investors speculate the two countries may face budget deficit and debt problems like those of Greece.
Such concerns helped lift the relatively safer haven U.S. dollar and yen.
Traders sold the single European currency on the view dismal public finances in euro zone countries may hinder any economic improvements in the region.
"Basically (Trichet is) acknowledging a very drawn-out, sluggish recovery subject to intense uncertainty," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. "The key thing is that rates are not moving anytime soon. With that and continued concerns over the fiscal situation, it's just another weight around the euro's neck."
The euro [EUR=X 1.3765 -0.0123 (-0.89%) ] was trading down nearly 1 percent on the day at about $1.37, close to an earlier low of $1.3778, its weakest since June 2009. Weakness was partly attributed to widening Greek, Portuguese and Spanish bond yield spreads over German benchmarks.
Traders said an options barrier at $1.3800 was broken by sellers, opening up further downside.
"Looking ahead, the Governing Council expects the euro area economy to grow at a moderate pace in 2010," Trichet said. "The recovery is likely to be uneven and the outlook subject to uncertainty."
Sterling [GBP=X 1.5785 -0.0097 (-0.61%) ] trimmed some losses against the dollar after the Bank of England announced a pause in asset purchases under quantitative easing, as expected. It left the door open to more purchases should the outlook warrant it.
But the pound still traded at around $1.57 against the dollar, down on the day but above an earlier three-and-a-half month low of $1.5760.
Strong US Data
Euro zone fiscal problems increase chances the U.S. economy will recover more quickly and the U.S. central bank will lift interest rates before the European Central Bank. Such a move would make dollar-based assets more attractive.
Mostly strong U.S. data this week supported this view, though risk-averse traders flocked to the yen, particularly after data showed initial U.S. weekly jobless claims unexpectedly rose last week.
The dollar was lower at around 90 yen [JPY=X 89.08 -1.89 (-2.08%) ]. The euro fell nearly 2 percent to about 124 yen [EURJPY=X 122.65 -3.69 (-2.92%) ].
Investors are now largely focused on the key U.S. non-farm payrolls numbers due on Friday.
The dollar index, a calculated measure of the dollar's performance against a basket of six currencies, rose toward 80 against a basket of currencies, it's highest since July, 2009.
The New Zealand dollar hit a five-month low after data showed the country's jobless rate hit a 10-year high while weak Australian retail sales data helped push the Aussie to a four-month low.
------------------------------------------------------------------------------------
The rest of the world follows us. They are now getting the results of their fiscal irresponsibility. In the world of currencies everything is relative and now its the developing countries that will be exposed.
I have blogged until I am blue in the face that there will not be a world wide recovery and that the rest of the world follows the US. The DJIA and S&P are full of multinational companies that have been doing relatively better than those in the US only but in the relatively near future the rest of the world will be catching up.
The break in the Euro has buried the, "dollar is going down...Fed is printing mony crowd. Gold is 1062 and on the edge of a cliff. The GDX 40.21 is back to its May highs. The street was touting the weak dollar play all of last year and that was and is going to be wrong. The Gold bugs will view this hit as a buying opportunity but they will be flying this plane into the ground with a smile on their face because they believe the story.
The rally in the dollar was said to be because an improving US economy. I believe that time will show that the strong dollar was because of a weaker world economy.
They are blaming the sell off on the Europeans, specifically Greece and Portugal. Those are the latest cracks. This is not the first crack to appear. See my blog of 11/25 on Dubai. I mentioned is was the Bear Stears of the developing world. I also mentioned that they would tell us that they solved that problem. They did that a week later.
I am sure they will do the same with this problem too. It, however, they cannot solve anything because what is done is done. Once the deed is done it has to play out. This one has a long way to go.
In the "flight to quality of the dollar" the Long Bonds are trading higher. The Gold bugs gotta love that one. Of course, we know the reason for the bonds going up is a weak economy...but don't let out our little secret.
Mikey
No comments:
Post a Comment