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Dollar Sinks to New Lows
By Darryl Thomson
Financial Times, London
Thursday, November 25, 2004
http://news.ft.com/cms/s/0217d728-3ed2-11d9-8e70-00000e2511c8.html
The dollar fell to an all-time low against the euro
for the third successive day and a nine-year nadir
versus the Swiss franc in thinner than usual trade
because of the U.S. Thanksgiving holiday. The belief
the U.S. is happy to see the greenback weaken as
part of the medicine for its huge double deficit
problem weighed on foreign exchange investors.
The euro rose to $1.3247 before easing slightly to
$1.3238 at 1700 GMT, a 0.6 percent rise. Against
the yen the dollar fell to Y102.41, its lowest since
January 2000, before recovering to Y102.58, a 0.2
percent fall, and fell 0.3 per cent against sterling
to $1.8895. The greenback fell 0.7 per cent against
the Swissie to SFr1.141.
JP Morgan lowered its end of year target for the
dollar to $1.35 against the euro and Y100. BNP
Paribas also cut its targets -- the dollar/euro to
$1.35 and dollar/sterling to $1.93.
"The market is not paying attention to strong U.S.
data or weak euroland data," Hans Redeker, Global
Head of FX Strategy, BNP Paribas, said, suggesting
this was a sign of the execution of portfolio
reallocation trades. Russia announced just such a
diversification move on Wednesday to cut the
proportion of its foreign exchange reserves held
in dollars.
The focus of renminbi revaluation speculation turned
to an annual high-level Chinese economic meeting
this weekend, where a decision was rumoured. If
China were to free its currency it would be expected
to pull other Asian currencies higher as it
appreciated. Many Asian nations indirectly peg their
currencies against the renminbi through the dollar
to maintain the competitiveness of their exports
against Chinese rivals and because of the increasing
importance of China as a trading partner.
Mr. Redeker advised China to listen to the U.S. calls
to float its currency as the weakening dollar was
undermining the country's need for tighter monetary
conditions: "It could come any day, but not one when
expectation is high." He forecast China allowing a 3
percent appreciation in an ERM-type band to
Rmb8.05 from its current Rmnb8.278.
If China were to revalue, it is believed Japan would
be less concerned about yen appreciation. The next
technical level for the yen against the dollar is seen
as Y101.25, which the currency failed to breach
despite several attempts six years ago. But Chris
Towner, consultant at risk manager HIFX, does not
expected Japanese intervention until the yen
breaches that level and heads toward the
psychological Y100 mark, and then only "for reasons
of excess volatility rather than yen strength."
Standing out among the gainers against the weak
dollar was the South African rand, up 0.8 percent on
the day to R5.8875. Trevor Manuel, finance minister,
said companies would have to live with the currency's
strength. He said the only way to try to depreciate
the rand against the dollar would be "to behave
completely stupidly" and overturn all long-made
decisions.
"The growing official view that the best you can do is
manage the decline of the dollar is fairly disastrous
from the dollar's point of view," Tony Norfield, global
head of FX strategy at ABN Amro, said.
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