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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Crimson Ghost who wrote (3358)	12/15/2003 8:58:24 AM
From: Haim R. Branisteanu	Read Replies (1) of 110194

Bundesbank Sees `Considerable' Risk of Further Dollar Drop Dec. 15 (Bloomberg) -- The Bundesbank said there is a ``considerable'' risk the dollar will further depreciate against the euro and threaten a recovery across the dozen nations using Europe's single currency. ``Given persistent high financing requirements for the U.S. current account deficit there remains a considerable potential for abrupt exchange rate moves,'' the Bundesbank said in its monthly report. A ``stronger'' dollar drop would create a ``significant risk of disruption'' to the region's exports. The euro has surged 20 percent against the dollar in the past year, partly on concern the U.S. won't be able to attract enough foreign capital to offset the deficit in its current account. The deficit reached a record $138.7 billion in the second quarter. Europe's economy is so far benefiting from a pick up in global demand that's offsetting the stronger currency. The European Central Bank, which says it favors a ``strong and stable'' currency, expects the euro region economy to expand about 1.6 percent next year. Still, some companies' foreign earnings are already under pressure. Volkswagen AG, Europe's largest carmaker, last month said profit in the U.S. will drop ``significantly'' next year. The euro, which on Friday rose to the highest since its introduction almost five years ago, bought $1.2227 at 11:36 a.m. in Frankfurt. The Bundesbank also said it sees a ``risk'' for currency and exchange rate levels if Asian central banks were to scale back their participation in the U.S. bond market. Germany's central bank remains optimistic about prospects for a global recovery, which are ``favorable'' given fiscal and monetary policies around the world. The Bundesbank said financing conditions in Germany are ``preparing the ground well'' for a recovery. The ECB in June cut its benchmark lending rate to 2 percent, the lowest level seen in Germany since 1876. Last Updated: December 15, 2003 06:05 EST

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