Thursday, October 11, 2007
Dollar tumbles against euro on ECB rate speculation
NEW YORK (AFP) - The dollar tumbled heavily against the euro Thursday as speculation grew that the European Central Bank may lift its benchmark interest one more time between now and the end of the year.
The euro surged to 1.4195 dollars at 2100 GMT, up from 1.4145 dollars late Wednesday in New York.
The single European currency, however, had earlier jumped to 1.4240 dollars, just shy of its record 1.4283 struck on October 1.
Traders said the euro largely drew fuel from a series of hawkish comments by European Central Bank (ECB) officials.
ECB president Jean-Claude Trichet reiterated that economic growth in the eurozone remained robust and that inflation was subject to upside risks.
His comments sparked renewed speculation that the ECB could be gearing up to hike rates against expectations of lower interest rates in the United States, which have served to apply downward pressure on the dollar.
Speculators generally prefer to invest in countries or regions where interest rates are higher so they can reap better returns on their currency bets.
"The US dollar remains quite weak as the currency markets remain full of dollar bears," Rob Giannone, a PNC currency analyst, said in a briefing note.
"The bulk of economic weakness and expectations for interest rate cuts are already priced into the dollar," he said.
The dollar meanwhile fetched 117.27 yen compared with 117.22 a day earlier and after the Bank of Japan opted to leave interest rates unchanged at 0.50 percent Thursday.
Japanese interest rates are the lowest among industrialized nations and have encouraged investors to borrow yen and invest the funds in other high-yielding currencies elsewhere. Sound Familar?
These transactions, known as carry trades, have weakened the yen, however.
"The risk appetite has rebounded and people are back to yen-funded carry trades," said Callum Henderson, head of currency strategy at Standard Chartered Bank in Singapore.
The dollar was unable to take advantage of two improved economic reports.
The Labor Department reported a fall in first-time claims for unemployment insurance last week to their lowest point in the third quarter, 308,000, down 12,000 from the prior week.
And the government said the US trade deficit narrowed more than expected in August to 57.6 billion dollars, marking its lowest reading in seven months as exports offset higher oil import prices.
In late New York trade, the dollar stood at 1.1819 Swiss francs from 1.1827 Wednesday.
The euro surged to 1.4195 dollars at 2100 GMT, up from 1.4145 dollars late Wednesday in New York.
The single European currency, however, had earlier jumped to 1.4240 dollars, just shy of its record 1.4283 struck on October 1.
Traders said the euro largely drew fuel from a series of hawkish comments by European Central Bank (ECB) officials.
ECB president Jean-Claude Trichet reiterated that economic growth in the eurozone remained robust and that inflation was subject to upside risks.
His comments sparked renewed speculation that the ECB could be gearing up to hike rates against expectations of lower interest rates in the United States, which have served to apply downward pressure on the dollar.
Speculators generally prefer to invest in countries or regions where interest rates are higher so they can reap better returns on their currency bets.
"The US dollar remains quite weak as the currency markets remain full of dollar bears," Rob Giannone, a PNC currency analyst, said in a briefing note.
"The bulk of economic weakness and expectations for interest rate cuts are already priced into the dollar," he said.
The dollar meanwhile fetched 117.27 yen compared with 117.22 a day earlier and after the Bank of Japan opted to leave interest rates unchanged at 0.50 percent Thursday.
Japanese interest rates are the lowest among industrialized nations and have encouraged investors to borrow yen and invest the funds in other high-yielding currencies elsewhere. Sound Familar?
These transactions, known as carry trades, have weakened the yen, however.
"The risk appetite has rebounded and people are back to yen-funded carry trades," said Callum Henderson, head of currency strategy at Standard Chartered Bank in Singapore.
The dollar was unable to take advantage of two improved economic reports.
The Labor Department reported a fall in first-time claims for unemployment insurance last week to their lowest point in the third quarter, 308,000, down 12,000 from the prior week.
And the government said the US trade deficit narrowed more than expected in August to 57.6 billion dollars, marking its lowest reading in seven months as exports offset higher oil import prices.
In late New York trade, the dollar stood at 1.1819 Swiss francs from 1.1827 Wednesday.
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