Dollar Edges Up After Euro Talked Down

Tue Nov 9, 2004
By Brent Kininmont

TOKYO (Reuters) - The dollar crept up on Wednesday, enjoying some respite from recent falls ahead of an announcement on U.S. interest rates and after more European officials spoke out against the euro's rapid rise.

Dealers were also reluctant to make big trades ahead of the release of U.S. trade data for September at 8:30 a.m. EST, although some analysts doubted the figures would have much impact.

The U.S. trade gap is expected to have narrowed slightly to $53.5 billion, thanks largely to a drop in the dollar which will have given exports a boost, according to a Reuters survey of economists.

"If the trade deficit is $50 billion or $60 billion or $45 billion, it doesn't matter. It's still huge," said Jake Moore, a currency strategist at Barclays Bank.

"It will have to be a shocking number to have any material impact on people's thoughts about the dollar."

At 9:40 p.m. EST, the dollar bought around 105.80 yen above the 105.67 marked in late U.S. trade and a seven-month low of 105.28 yen hit on Monday.

The yen hardly moved on data showing Japan's current account surplus expanded by 9.3 percent in September from a year earlier as demand for exports remained healthy.

The euro fetched around $1.2895 little changed from the $1.2900 in late New York trade but down about one cent from the record high of $1.2987 marked on Monday.

The dollar got a lift in New York after several European policymakers echoed comments made earlier in the week by European Central Bank President Jean-Claude Trichet, who had called the euro's rise against the dollar "brutal."

Italy's deputy economy minister, Mario Baldassarri, said that the ECB should cut interest rates if the euro rose to the psychologically important level of $1.30.

RATE RISE AHEAD

Traders said activity would probably remain subdued until after the Federal Reserve announces its decision on interest rates later in the day. The market wanted to see the statement that accompanies the decision to determine the future pace of monetary tightening.

Judging by interest rate futures, another rate rise is seen by the market as almost certain at the Fed's final policy meeting of the year in December.

The Fed is expected to raise rates on Wednesday by a quarter of a point, which would bring the key U.S. federal funds rate to 2.00 percent, equal to the benchmark official rate in the euro zone.

Higher U.S. rates usually translate into greater demand for certain U.S. assets, which spurs demand for dollars.

But despite Baldassarri's comment on euro rates, analysts do not expect investors to suddenly flock to short-term dollar deposits as the interest rate differential between the United States and the euro zone disappears.

"We've heard some jawboning over euro strength, importantly from the ECB recently, but I don't think that they would intervene, and furthermore I think the next European move is still a (rate) hike," said Naomi Fink, senior currency strategist at PNB Paribas.

"I don't think that the inflation patterns that we've seen recently with inflation rising slightly -- though arguably due to higher oil prices -- are going to be supportive of a rate cut." simply a worry and nothing else.

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