Despite Good News, Dollar in the Dumps
Wednesday December 3, 3:28 pm ET
By Daniel Bases
NEW YORK (Reuters) - The dollar slumped to a record low against the euro for a fourth straight day on Wednesday as investors focus on the dominant sell-off trend and not on the strong U.S. data that heralds an economy regaining its stride.
The sell-off in the dollar has for weeks overwhelmed the string of strong economic data, including Wednesday's government report showing U.S. workers operated more efficiently in the third quarter than at any time in the last 20 years.
After reaching significant lows against its major rivals in the last week, the strong productivity data did little to move the dollar higher in value. Likewise, reports showing disappointing growth in the vast U.S. services sector last month and a dip in U.S. mortgage applications last week were no help, but not seen as major hindrances either.
"Despite all this data, there is a counterbalance of terrorism, and maybe the economic data overextending itself in that it is rebounding from depressed levels," said Joe Francomano, vice president of foreign exchange at Erste Bank in New York.
"At least in the currency markets they have definitely discounted the data as having a greater impact on the economy when compared to terrorism and the growing threat of an economic drain from Iraq," he added.
Additionally, the inability of the U.S. financial markets to attract enough capital to offset the U.S. current account deficit given benchmark interest rates are at a 45-year low of 1 percent is another reason for looking for investment growth elsewhere.
Signs that Germany was not worried by the euro's persistent climb gave added encouragement to euro bulls who bid the euro up to a record high $1.2128 (EUR=) according to Reuters data. It then retreated to $1.2095, still a small gain of 0.15 percent on the day.
The euro is now trading about 3-1/2 cents higher than its launch level where the currency first traded around $1.1747 in January 1999. It reached a low near $0.8225 in October 2000.
"The dollar is looking more at the structural imbalances in the United States rather than economic data," said Michael Cairns, trading manager with FX Solutions in Ridgewood, New Jersey.
"Dollar weakness is a massive underlying trend at the minute," he added. The next resistance levels for the euro lie at $1.2149, then $1.2168, above which it could rise as high as $1.2400, Cairns added.
Fears of intervention by the Bank of Japan to hold the dollar up against the yen, kept the greenback from sliding too much against the Japanese currency. The dollar traded near its two-week low of 108.14 yen (JPY=), a loss of 0.40 percent on the day, according to Reuters data.
The Australian dollar leapt to a new six-year high above US$0.7360 (AUD=) after the Reserve Bank of Australia hiked rates for a second straight month on Wednesday to 5.25 percent. That helped bring its gains against the greenback to more than 31 percent in 2003.
Sterling hit a fresh five-year high for the sixth straight session, touching $1.7317 (GBP=), according to Reuters data.
ECONOMIC UPSWING
Early in the U.S. session, the dollar made only muted gains against the euro in response to third-quarter U.S. productivity data that was revised up to show growth of 9.4 percent.
It traded skittishly after a the Institute for Supply Management non-manufacturing index, a measure of the U.S. service sector economy, came in at 60.1 in November, below economists' consensus forecasts for a reading of 64.3 and down from 64.7 in October. A reading above 50 denotes expansion.
The market's main focus remains the U.S. November non-farm employment report due on Friday, analysts said. Economists' consensus forecasts are for a rise of 150,000 in payrolls, according to a Reuters poll on Wednesday.
(Additional reporting by Manuela Badawy, Gertrude Chavez and John Parry in New York and Christina Fincher and Carolyn Cohn in London) |
