Dollar gains ground
BERLIN (AP) – The U.S. dollar recovered further ground against the euro and the yen Friday, making its third consecutive day of gains as traders pulled back from weeks of pushing the currency to new lows. The euro dropped as low as $1.3141 in European trading – about 1 U.S. cent below its level a day earlier and more than 3 cents clear of its all-time high, reached Tuesday, of $1.3470.
“We are seeing a clear correction of the euro against the dollar,” said Christoph Mueller, an economist at DZ Bank in Frankfurt. “People were expecting it to climb above $1.35 and that didn’t happen.”
Concern over the U.S. trade and budget deficits had powered the euro to a series of new peaks over recent weeks, and the 12-nation currency has shot up from around $1.20 in September.
However, traders are now squaring positions and awaiting next week’s meeting of the U.S. Federal Reserve, which is expected to boost interest rates for the fifth time this year, Mueller said. He argued that the euro could drop further by the end of the year, to between $1.2930 and $1.30.
The dollar also posted new gains against the Japanese yen in Asian trading, reaching a new three-week high of 105.47 yen. It bought 105.22 yen in late trading in Tokyo – up 1.22 yen from late Thursday and also above the 104.50 yen in New York later that day.
The British pound was quoted at $1.9027, down from $1.9173.
“Corrective dollar purchases will likely last for some more time. The dollar might rise to around 106 yen and $1.30 (to the euro) during this correction process,” said Masaki Fukui, senior vice president of foreign exchange at Mizuho Corporate Bank in Tokyo. “Hedge fund players want to lock in profits (by buying back dollars) before the Christmas and New Year holidays.”
The U.S. currency got a lift this week from weaker-than-expected economic data in Japan, which stoked concerns that the country’s recovery is slowing, and from a U.S. Energy Department report that U.S. stocks of crude and heating oil rose more than expected last month.
The currency also has benefited from the perception that the Federal Reserve will continue to raise U.S. interest rates, while rate hikes are on hold elsewhere.
The central banks of Britain, Sweden, South Korea, Chile, South Africa and New Zealand all left their benchmark lending rates steady Thursday, while their counterparts in Canada and Australia stood pat earlier in the week.
Higher U.S. interest rates make U.S. bonds more attractive to investors, thereby supporting the dollar. Economists expect the Fed to boost its key rate by a quarter percentage point next week to 2.25 percent – a move that would take it above the European Central Bank’s main refinancing rate, which has stood at 2 percent since June 2003.
A weak dollar can help the U.S. economy, at least in the short term, by making American products cheaper for buyers abroad. European officials and executives worry the strong euro could hurt their economic recovery by making the continent’s exports more costly abroad.
AP-ES-12-10-04 0729EST