Dollar Gains on Rallying Stocks, Comments From Saudi Prince
Thu Aug 22, 6:42 PM ET
By John Parry
Dow Jones Newswires
NEW YORK -- The dollar posted solid gains against an array of widely traded rivals Thursday, buoyed by rallying equity markets and some supportive comments for U.S. assets from a key Middle Eastern investor.
The greenback gained around one and a half yen and a cent against the euro. It was also cheered by some signs of life in the corporate bond market, after General Motors Acceptance Corp. launched $2.5 billion of two-part global debt through lead managers Banc of America Securities, J.P. Morgan, Salomon Smith Barney Inc. and UBS Warburg.
Late Thursday in New York, the dollar was buying 119.87 yen, not far off its session highs and steeply up from 118.57 yen late Wednesday in New York. The euro was trading at 96.88 U.S. cents, much weaker than 98.00 U.S. cents late Wednesday. The dollar was also changing hands at 1.5173 Swiss francs, well up from 1.4986 francs late Wednesday. Sterling was at $1.5215, down from $1.5311.
In addition, the dollar benefited as the level of global risk aversion, which has been retreating from high levels during the past two weeks, continued to fall.
Among the few U.S. data reports Thursday, weekly initial jobless claims released came close to expectations, falling a modest 2,000 to 389,000 in the week that ended Aug. 17, the Labor Department ( news - web sites) said. The dollar got a modest lift from that report.
In quiet, summer trade, much of the market's focus was on whether Middle Eastern -- in particular Saudi Arabian -- investors were withdrawing from U.S. assets. Some analysts think they are, partly because of resentment over post- Sept. 11 criticism of the Kingdom, as well as a $1 trillion lawsuit by relatives of Sept. 11 victims naming Saudi banks and members of the Royal family, and a desire to hedge risk in U.S. capital markets.
A senior member of the ruling family Thursday denied such speculation and said he is increasing his investments there. Prince Alwaleed bin Talal, the nephew of King Fahd, told the BBC that there was no evidence of a major Saudi retreat from U.S. assets, helping the dollar to bounce early in the New York day against a bevy of rivals.
"I'm holding onto all of them [my investments] and in all honesty increasing my stakes in certain companies in the U.S.," he said. The prince, a major investor in U.S. markets, said he was speaking on behalf of the Saudi royal family, according to the BBC. He also said that while the U.S.-Saudi relationship was going through a "turbulent period right now," it would eventually "go back to normalcy."
Despite skepticism among some currency-market participants both about whether Saudi investors are selling U.S. assets, or whether such sales would have much of an effect on the dollar in any case, the comments from the Saudi Prince proved sufficient to lift the greenback.
"Customers (Australia: CUS.AX - News) have been keenly interested in the whole Saudi situation," with the latest reports definitely helping the dollar, said Lara Rhame, senior economist with Brown Brothers Harriman in New York.
According to data from the U.S. Treasury, a group of eight oil-exporting countries in the Middle East, including Saudi Arabia, purchased on net during the fourth quarter of 2001 and the first quarter of 2002 a total of $5.64 billion Treasurys, $1.06 billion of agency bonds and $1.276 billion of corporate bonds. They sold, on net, $1.34 billion of corporate stocks, according to Treasury data.
Market watchers said the Saudi prince's comments helped remove some support from the euro, which is seen as a key beneficiary of any retreat from the U.S. by Middle Eastern investors. The key relapse of the euro gained pace after it fell below the 97.50 U.S. cent support level.
Some signs of a softer European economy also hurt the common European currency. A report showed Germany's gross domestic product rose 0.3% in the second quarter, in line with expectations. However, there was some disappointment because growth was driven by a buildup from inventories while business investment fell.
"We saw some decent selling [of the euro] off the German GDP ( news - web sites) number," said Stephen Reilly, senior trader at Gain Capital in Warren, N.J. He noted that persistent concerns about the budgetary impact of flood damage to parts of Europe are also weighing on the common currency.
Early in the New York day, the euro sagged, giving the dollar a boost against many other currencies, after German Finance Minister Hans Eichel opposed an opposition-party suggestion to use Bundesbank profits to help pay for the flood damage, due to EU budgetary restraints.
"This was another sign of their fiscal rectitude, but at this point, the markets don't want to see fiscal rectitude, they want them to go out and spend," said Shahab Jalinoos, a currency strategist at UBS Warburg.
Meanwhile, the yen weakened partly after Japan's July trade surplus fell short of market expectations, although Japan's exports to Asia continue to grow strongly. If export growth is sustained it is likely to boost the yen over the longer term, noted strategists at UBS Warburg in a daily research note.
These economic data, detracting a little from the dollar's two main rivals, contrast somewhat with a relatively optimistic view of the U.S. economy disseminated by some senior Federal Reserve ( news - web sites) officials Wednesday, which jolted capital-market participants to the realization that another Fed interest-rate cut may not be certain.
-- Grainne McCarthy and Tyler Lifton contributed to this report. |
