Dollar Rally Gains Momentum, Euro Under $1.43
By Fabio Alves
OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The dollar soared Friday, pushing the euro below $1.43 for the first time in over three months and hitting a six-week high against the yen as a powerful rally gained momentum.
The dollar jumped after traders succeeded in pushing it through some key levels against the euro and the yen. The dollar also hit its highest level since Sept. 7 against a basket of six currencies.
The greenback has been soaring on evidence that real signs of a recovering U.S. economy are now working in its favor. The currency is up 5.6% against the euro and 3% against the yen since late Dec. 3, the day before an encouraging November nonfarm payrolls report pierced holes in the consensus view of when the Federal Reserve might start raising interest rates. The dollar has been mostly a tear since then.
Concerns over the debt burdens of Greece and other euro-zone countries, meanwhile, are weighing on riskier assets. That, and the massive run-up in risky assets this year funded largely with cheap dollars, has prompted some investors to take dollar-negative bets off the table ahead of year end.
"The greenback continues to benefit from the Fed's recent monetary policy statement, mounting worries about euro zone sovereign credit risk, year-end positioning and now, geopolitical tensions," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington. He was referring to reports that Iranian forces took control of a southern Iraqi oil well in a disputed section of the border Friday.
Late morning Friday in New York, the euro was at $1.4282 from $1.4352 late Thursday, according to EBS via CQG. The dollar was at Y90.49 from Y90.00, while the euro was at Y129.28 from Y129.14. The pound was at $1.6075 from $1.6165. The dollar was at CHF1.0453 from CHF1.0465.
The Dollar Index, which tracks the U.S. currency against a trade-weighted basket of six currencies, was at 78.013 from 76.900.
"The fact that liquidity is on the light side because of the holiday season is making these moves ever more violent," said Jacob Oubina, a currency strategist at Forex.com in Bedminster, N.J.
The spike in the dollar Friday is more a reflection of a technical move related to options trading than driven by fundamental factors, he said.
Many investors choose to take a break ahead of a week shortened by the Christmas holidays.
The dollar's rally against the yen began to build overnight when the Japanese central bank kept its key interest rates unchanged at 0.10%, but said it won't tolerate deflation, or the persistent decline in consumer prices.
"Clearly, they're going to remain vigilant in terms of fighting deflation, so this leaves no doubt that interest rates will probably remain at or near zero," Oubina said.
"The yen will once again resume" its traditional role of funding purchases of higher-yielding assets, he said.
For most of 2009, near zero interest rates in the U.S. prompted investors to use dollars, rather then yen, to fund higher-yielding purchases. That has shifted recently, with encouraging economic data meaning the Federal Reserve is now expected to withdraw liquidity and eventually tighten rates during 2010, while Japan's economy could still struggle enough to force the Bank of Japan to keep rates low.
In other currencies, the Swiss franc held on to its overnight gains against the dollar and the euro, which sparked talk of intervention by the Swiss National Bank. Rumors of a coup in Pakistan, later denied by a spokesperson for Pakistani President Asif Ali Zardari, earlier sent the euro below the key level of CHF1.50.
That level is SNB's supposed "line in the sand" that the bank had staunchly defended via intervention since the introduction of quantitative easing March 12.
The Swiss franc is the top performer after a sharp sell-off in the euro against the Swiss currency overnight, but there was "no sign of the SNB," Brown Brothers Harriman strategists wrote in a note to clients.
-By Fabio Alves, Dow Jones Newswires; 212-416-2204; |
