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Everyone expects intervention or a bounce for the dollar but it''s not happening
Covert Intervention by European Central Bank Expected
By Raj Rajendran
Reuters
Thursday, November 25, 2004
http://www.reuters.com/financeQuoteCompanyNewsArticle.jhtml?
duid=mtfh66519_2004-11-25_13-55-06_l25626607_newsml
LONDON -- The euro hit a record high of $1.32 on
Thursday on a growing view Washington is happy
to see a weaker dollar, while bond prices rallied
on a slump in the German Ifo business confidence
index to its lowest in over a year.
Gold soared to a fresh 16-1/4-year high above $452
a troy ounce on the back of the sliding dollar and
oil moved above $49 a barrel on concerns over thin
heating oil supplies.
But European equity investors drove stock markets
higher as corporate earnings continued to please, in
light trade with Wall Street shut for the U.S.
Thanksgiving holiday.
Appetite for euro zone assets was underlined by
data showing a sharp increase in portfolio
investments to 39.6 billion euros in September from
6.3 billion in August.
"The basic message coming from (the data) is that
there is a more solid backing coming from the
underlying investment flow picture for a stronger
euro than we have seen for some time," said Tony
Norfield, global head of foreign exchange strategy
at ABN AMRO.
The FTSEurofirst 300 index rose 0.63 percent at
1,029.33 points.
The euro set a high of $1.3237 while the dollar fell
to 102.41 yen, a loss of more than 8 percent since
late September.
The dollar also set new lows against other
currencies -- a nine-year low against the Swiss franc,
a 16-year trough on the New Zealand dollar, and a
nine-year low against a basket of currencies.
"We have moved into a new stage of the dollar decline. ...
The move is very much a full-fledged policy event. Until
policymakers truly protest, what's going to stop the
trend?" said Jim McCormick, head of foreign exchange
research at Lehman Brothers.
Euro zone policymakers could be forced to show their
hands in the face of patchy economic growth. The latest
dismal Ifo index is another sign that all is not well.
The German Ifo business climate index fell to its lowest
level in more than a year at 94.1 in November as the
euro's surge to new highs and strong oil prices
dampened confidence among executives.
"It is becoming increasingly accepted that the European
Central Bank will have to act in the event that the euro
nears the $1.35 level, which is the equivalent to the
1.45 low in the USD/Deutsche mark attained in summer
1995," said MG Financial Group chief currency analyst
Ashraf Laidi.
Laidi expects the intervention to eventually take the form
of covert euro selling via German and French commercial
banks.
The stronger euro and weak Ifo data helped euro zone
government bonds rise as the interest-rate sensitive
two-year Schatz yield fell to its lowest in more than 7
months at 2.32 percent.
The December Bund future was up 12 ticks on the day
at 118.30, compared to 118.31 before the data.
Earlier, the Bund future hit a contract high at 118.36
after confidence among Italian manufacturing firms fell
in November to its lowest level since May.
U.S. Treasury markets are closed but on Wednesday
short-term yields shot up to two-year highs on
expectations of higher U.S. interest rates.
Solid results from Britain's biggest supermarket Tesco
and German chemical giant Bayer helped shares get
off to a strong start as investors looked past the stronger
euro.
Consumer electronics giant Philips also rose after selling
its 3 percent stake in French media group Vivendi
Universal for 720 million euros.
Philips shares rose 1.5 percent as traders speculated what
it would do with the cash, while shares in Vivendi eased
0.7 percent.
Britain's third largest bank Barclays was one weak spot,
down 3.7 percent as traders focused on increased costs
despite the company confirming it expected to meet
market forecasts for the full year. U.S. stocks closed
higher on Wednesday, with technology stocks Google
Inc. and Apple Computer Inc. leading the way.
Tokyo's Nikkei average closed higher but the gains were
capped by the yen rising to new 4-1/2 year highs against
the dollar.
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