Dollar turn to be hit by ECB uncertain monetary policies?
A big day's outing for the euro
By Andreea Papuc
The euro made a dazzling debut on world financial
markets yesterday, surging against major currencies on its
first day of official trading.
The euro opened in Sydney when official trading for
1999 started at 5am, first trading at $US1.1742/47, in
line with expectations.
By late yesterday afternoon in Tokyo it had raced to an
intraday high of $US1.1878, a jump of 1.7 per cent from
the effective price of $US1.1685 set by the European
Central Bank on December 31 when it fixed the
conversion rates of the 11 participating currencies.
The euro made further gains to a high of $US1.1911 in
early London trade overnight.
It was the first launch of a major new currency in
international markets, but volumes were light as market
participants shied away from aggressive trading because
of uncertainty about the actions of the European Central
Bank.
"For a period of two hours it was wonderful to trade a
new currency," said Mr Kurt Magnus, senior manager of
foreign exchange at the Commonwealth Bank of
Australia. "But after that it was normal business. The euro
is now part of the furniture.
"The euro-US dollar will certainly be the most traded
currency pair in the world. Liquidity will be high and
supply and demand are so high that volatility will fall.
People are just starting to find their feet."
Strong demand from Asian funds also pushed the euro
higher against the yen, the pound, and the Australian
dollar, with analysts predicting it would firm further.
The $A opened at 0.5220 euro and fell to 0.5172 euro
late afternoon.
The euro rose to ¥134.71 in Europe late yesterday after
opening at ¥133.15. It was at £0.7128 after opening at
£0.7071.
Traders, many of whom had cut short their summer
holidays to come in to their offices at 3am, were
surprised by the depth of liquidity. Although there was
hardly any corporate business going through, euro/US
dollar spreads were tight, highlighting the significance of
the new currency.
"It's amazing because all the world banks are in trading,"
said Mr David Willis, head of Westpac Markets. "We
wouldn't see this on a Monday morning. Liquidity in the
euro is greater than liquidity we saw in the legacy
currencies."
The CBA said it had executed the first euro/Australian
dollar foreign exchange trade, selling an undisclosed
amount of euros to AMP.
Local and international banks jostled for some piece of
history as the euro began trading officially.
John Fairfax Holdings Ltd, the publisher of The
Australian Financial Review, claimed the world's first
euro foreign exchange transaction through National
Australia Bank. John Fairfax bought five million euro at
$US1.1747. The trade took place on the stroke of 5am.
In the domestic interbank market, Westpac claimed to
have done one of the first trades, selling three million
euros to ABN AMRO at $US1.1745. Meanwhile,
Deutsche Bank was believed to have done the first
international euro/US dollar trade through a deal with
Merrill Lynch in Singapore executed at $US1.1744 at a
few seconds after 5am.
Dealers from London to New York and from Paris to
Frankfurt stood by as the euro began to trade officially in
Sydney, although some deals had been done via the
Electronic Broking System.
The work over the conversion weekend to make sure
systems were failure-proof and orders were rolled over
from the legacy currencies into euros paid off.
"It went very well," said Mr Bernard Sinniah, head of
treasury sales and EMU co-ordinator for Australia at
Citibank.
"Citibank put a lot of effort into the systems. We had
some good customer deals locally as well as
internationally. It was historic and everyone wanted to be
there."
However, he suggested people not read too much into
the first day of trading.
"It is going to take some time before people feel where
the currency is going to go and no-one is sure about the
systems," he said.
Mr Ian Town, head of foreign exchange at Deutsche
Bank, said: "Everything went relatively smoothly. There
was not a lot in the way of significant client activity. A lot
of the people are concentrating on operational risk rather
than market risk."
At Westpac Banking Corp it was also plain sailing.
"It was a very smooth transition," said Mr Peter
McGrath, chief dealer at Westpac Banking Corp. "I think
the ECB will be ecstatic the way things are going."
Dealers are cautious about injecting too much volatility
into the new currency, mindful that the new central bank
is closely watching developments from the sidelines.
There was talk of individual European Central Bank
orders in the market to ensure a relatively smooth ride for
the euro.
"The wild card will be the role of the ECB. The market is
not familiar with how the ECB's monetary policy will be
conducted," said Mr Peter Clay, treasury strategist at
ABN AMRO.
Mr Glenn Maguire, senior economist at SG Australia,
predicted the ECB would indicate that euroland interest
rates would remain stable at 3 per cent in the first
quarter.
afr.com.au
|
