Euro touches 16-week high
news.bbc.co.uk
I not only watch 'em, I trade 'em.....
The euro: gaining strength against the dollar
The euro edged higher against the dollar,
climbing above Friday's three-month high as
concern for the US economy continued to bite.
On Monday the euro at one point climbed to
90.06 cents, breaking through the 90 cent
barrier for the first time since 26 April,
although in later trade it fell back to 86.69
cents.
There was some hope of respite for the UK's
hard pressed exporters as the euro also gained
ground against the pound to hit its highest
level for four months. At the close of trade in
London a euro was worth 63.2p.
The euro's rise was catalysed by the "Beige
Book", the overview of the United States
economy published by the Federal Reserve
eight times a year, which painted a gloomy
portrait of ongoing weakness.
Some short-term support for the euro is
flowing from hopes that the European Central
Bank will reduce interest rates for only the
second time this year, perhaps as soon as 30
August, some economists said.
Inflation risk eases
Retail sales figures in Germany, released on 13
August, were even worse than expected,
encouraging hopes of a rate cut from the ECB
at the end of August or at the following
meeting on 13 September, said WestLB
currency strategist Michael Klawitter.
"We expect that eurozone inflation will be
favourable (for a rate cut)," he said. "This is
something investors are betting on, and is
supplying some mild support."
The latest monthly report from the ECB,
released on 9 August, said "sizeable" risks
remained to growth in the eurozone.
The ECB also said inflationary pressures in the
12-country eurozone may be easing.
Marc Hendriks, currency strategist at SocGen
in London, agreed that the ECB will cut rates
within a few weeks, with at least one further
cut expected later in the year. In May, the
bank cut a quarter-point, to 4.5%.
All eyes on the US
But the euro's surge is unlikely to last, he said.
Like Mr Klawitter, he stressed that the US is
the real story, following on from the depressing
outlook in the Beige Book which spoke of
stagnating growth.
A mass of US economic data is due out this
week, from retail sales numbers on Tuesday via
industrial production and consumer prices to
trade balance figures and the well-regarded
University of Michigan consumer sentiment
survey on Friday.
Results from key companies such as computer
maker Hewlett-Packard are also due this week.
These are likely to demonstrate that the pain
felt by US corporations is set to persist, said
Mr Klawitter.
Flood of data
The consumer numbers in particular are eagerly
awaited. With manufacturing in the doldrums,
consumer spending has helped support the US
economy this year, and significant slippage
could trigger further pressure on the dollar.
"The dollar was only as high as it was because
there was nothing else to buy," he said,
pointing to the continuing weakness of
eurozone economies and of other possible
candidates such as the Swiss franc.
"Now that's gone too, and there's nothing to
buy at all."
The euro is likely to stay within a range of
85-92 cents for the rest of the year, Mr
Hendriks said.
Whatever its current woes, the US economy is
still a better bet than Europe for a recovery
some time early next year, he said. |
