Dollar Falls Slightly as Turbulence Abates
Thu Jun 27, 6:09 PM ET
By: John Parry and Tyler Lifton
Dow Jones Newswires
NEW YORK -- The dollar fell slightly Thursday, earning a relative breather after its battering in the wake of the WorldCom scandal, but few saw the greenback's hiatus as more than a fleeting calm before another onslaught of negative sentiment.
Although the day was marked by range trading among the major currencies, the greenback moved lower against both the euro and the yen, ending the New York day still around nine-month lows against the yen and a 28-month trough against the euro.
Late Thursday, the dollar was at 119.41 yen, off its 120.28 yen intraday high, and lower than the 119.97 yen in late New York trading Wednesday. The euro was at 98.80 U.S. cents late Thursday, not far from its session high of 98.98 cents, and higher than the 98.15 cents recorded late Wednesday in New York .
Against the Swiss franc, the dollar was at 1.4887 Swiss francs down from 1.4945 francs late Wednesday in New York . Sterling was at $1.5291, up from $ 1.5260 late Wednesday in New York .
Initially, the dollar was cheered by stronger-than-expected U.S. first-quarter gross-domestic-product data, but the currency's rally gradually ran out of steam, once again underscoring the currency's relative immunity to positive U.S. economic data.
The dollar also benefited during part of the day from a rally in U.S. stocks, which were nervously recovering from the shock of WorldCom's major accounting scandal unveiled Wednesday. But worries persisted that there may be more accounting skeletons in Corporate America's cupboard, leaving the greenback vulnerable to yet more risks.
"A lot of foreign investors still had dollar risk on the table," said Paresh Upadhyaya, currency analyst at Putnam Investments in Boston . "The WorldCom story is the nail on the coffin giving more than enough incentive to take that risk off the table."
Continuing to weigh on the dollar also were comments earlier this week by President George W. Bush ( news - web sites), which are still interpreted by foreign-exchange market participants -- despite White House denials -- as a de facto abandonment of the so-called "strong dollar" policy.
"Seemingly benign neglect by the U.S. government," of the dollar's recent decline "will keep pressure on the dollar going down the road," said John McCarthy, director of foreign exchange at ING Barings Capital Markets in New York.
Nevertheless, there were indications from European officials that there are limits they will likely tolerate to the euro's ascent, albeit some distance above its current trading range. If the euro reaches $1.10 it could pose problems for the German economy, Bert Ruerup a member of the German government's council of economic advisors told Dow Jones Newswires Thursday.
Mr. Ruerup's comments were among the first from euro zone officials indicating that there may be an effective line in the sand of common currency strength. Most European policy makers until now have welcomed the euro's appreciation, not least because it will ease pressure on the European Central Bank to raise interest rates.
In another warning shot to those who expect the dollar to be left entirely at the mercy of market forces, former ECB vice president Christian Noyer said, in an interview with the Nihon Keizai Shimbun newspaper, that monetary authorities around the world will have to intervene jointly in foreign-exchange markets to prevent wide fluctuations in exchange rates.
However, this sounds like a view that goes against the grain, especially considering that Bank of England Governor Eddie George said Wednesday that he welcomed the realignment in exchange rates while Mr. Bush, in carefully worded remarks, has said the U.S. dollar might need to decline further in order to help U.S. manufacturers.
Against this more vociferous chorus of guidance from top policy-makers from the leading industrial nations, foreign-exchange market participants maintained the view that the euro has the potential -- even in the face of quite weak euro- zone economic data -- to capitalize on doubts encircling the dollar.
BNP Paribas again revised downward its forecast for the greenback Thursday. With its previous euro target of 98 cents having been achieved much earlier than anticipated, the bank revised its forecast for the single currency up to $1.02 for the end of both the third and fourth quarters.
Euro parity with the dollar is "just around the corner," said Mr. Upadhyaya. " Portfolio outflows are likely to continue and the [U.S. current account] deficit will continue to be a problem," he said. The deficit is currently around 4.3% of gross domestic product and widening, amid signs that the slew of corporate- accounting scandals are set to prompt foreign investors to withdraw their funds from U.S. assets.
"As people become risk averse, they stop putting additional funds into the U.S. ," leaving the major concern of how the U.S. will continue to finance the deficit, said T.J. Marta, senior analyst at Citibank in New York .
Among other currencies, late in the global day, the Brazilian ( news - web sites) Real was once again hovering near all-time lows, at 2.855 Brazilian reals per dollar versus 2.882 reals Wednesday. The real has been hammered by concerns about the sustainability of Brazil 's debt as well as market jitters about the outcome of a presidential election in October.
Analysts said these issues are set to continue to weigh on the real. "Moves in the real well beyond 3.00 real are possible if the country's difficulties continue, with negative implications for Latin American currencies generally," said Shahab Jalinoos, a currency strategist at UBS Warburg in London .
-- Grainne McCarthy in New York and Andrea Thomas in Frankfurt contributed to this report
Write to John Parry at john.parry@ dowjones.com and Tyler Lifton at tyler.lifton@dowjones.com
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