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To: Lizzie Tudor who wrote (42815)	2/2/2003 1:19:58 PM
From: Haim R. Branisteanu	Respond to of 52237

Lizzie, I really do not know, I am sitting on substantial gains on the EUR so my judgment is a bit blurred as of now. IMHO there is a need of consolidation and would follow the political developments in Germany. Weakening of the socialists in Germany will strengthen the EUR. On the other hand a successful campaign in Iraq will rule the USD supreme. As such I am trying to protect my gains

To: Lizzie Tudor who wrote (42815)	2/2/2003 2:08:31 PM
From: Haim R. Branisteanu	Respond to of 52237

Polls: Schroeder's Party Routed in State Elections By REUTERS Filed at 1:44 p.m. ET BERLIN (Reuters) - German Chancellor Gerhard Schroeder's Social Democrats suffered crushing defeats in two state elections Sunday as voters vented their anger at high unemployment, tax hikes and near-recession, polls showed. Not even Schroeder's opposition to a possible Iraq war, which has left him isolated abroad but popular in war-weary Germany, was enough to offset public disgruntlement over the economy four months after he was re-elected. The SPD suffered its worst results since 1945 in Schroeder's home state of Lower Saxony and in Hesse, television projections showed after polling booths closed at 6 p.m. (1700 GMT). Losing Lower Saxony makes it impossible for the SPD to circumvent the opposition conservatives Christian Democrats' majority in the Bundesrat upper house of parliament, and will force Schroeder to cooperate with them to get laws passed. ``This is a vote of no confidence in Schroeder and his government,'' said conservative Bavarian state premier Edmund Stoiber, who was narrowly beaten by Schroeder in the September general election. ``We're going to use this result to enforce a change in German politics.'' Ten million people were eligible to vote in the two states, the first test of sentiment since the September ballot. One projection by the Infratest polling institute on ARD television showed the Christian Democrats (CDU) surged to 48.3 percent in Lower Saxony from 35.9 percent in the last election in 1998, with the SPD crashing 15 points to 33.0 percent. In the central state of Hesse, the CDU held on to power with an increased majority, scoring an absolute majority of 50.1 percent, up from 43.4 percent in the last election in 1999. The SPD plunged to 27.7 percent from 39.4 percent, the poll showed. ``LONELY CHANCELLOR'' Schroeder's popularity has plummeted since he was re-elected on a wave of support for his anti-war stance on Iraq and his strong handling of devastating summer floods. Influential news magazine Der Spiegel ran a picture of a grim-looking Schroeder headlined ``The Lonely Chancellor,'' speculating that defeat will weaken his standing in the SPD. He has tried again to tap anti-war sentiment, ruling out a German ``Yes'' to war in any U.N. Security Council vote. Germany currently sits on the Security Council. But polls show his Iraq policy has not eclipsed concern about economic woes. Businesses and financial markets hope defeats in the two states will speed reform by strengthening the conservative opposition and persuading Berlin to become more aggressive in cutting welfare costs choking the economy. ``I'm optimistic. When the election campaigns are over, the government will put its foot on the accelerator and the opposition will cooperate,'' the head of the Federation of German Industry, Michael Rogowski, told Welt am Sonntag newspaper. The stock market could also benefit. ``New political impetus would definitely help share prices,'' Hans-Joachim Koenig, fund manager at Union Investment, told Die Welt newspaper. Schroeder has ruled out resigning but poor results are certain to hurt him and make it harder to get laws passed without backing from the Christian Democrats. Political analysts say defeat could silence the SPD's left wing, which has opposed moves by Economy Minister Wolfgang Clement to deregulate the labor market. Losses could also underline the perception that, without radical cuts to the cost-laden social system which has made jobs too expensive for many companies, the government would fail to cut unemployment and lose power in the next general election. January unemployment data due Wednesday are expected to show a rise to 4.55 million on an unadjusted basis, the highest level for that month in five years. nytimes.com welt.de

To: Lizzie Tudor who wrote (42815)	2/3/2003 6:22:40 PM
From: Haim R. Branisteanu	Respond to of 52237

Crunch Time for the US$ (Bank of Montreal) Monday, February 3, 2003 bmonesbittburns.com The great bull run by the U.S. dollar came to a grinding halt precisely a year ago, laid low by a cornucopia of U.S. economic negatives - dimmed medium-term growth prospects, the rash of corporate scandals, negative interest rate spreads and a runaway trade deficit. From its peak, the greenback has now dropped 13% against a basket of major currencies and seems poised for further weakness (Chart 1). While Treasury Secretary John Snow confirmed this week that he favours a "strong dollar" policy, the reality is that we are now in a "weak dollar" world. Over the next few years, the only strong dollars are likely to be found in New Zealand, Australia and, possibly, Canada. On a broad trade-weighted basis, the decline in the U.S. dollar over the past year was much milder, since it is tied to a number of currencies (such as the Chinese yuan) and it strengthened against the beleaguered Latin American currencies (Chart 2). Indeed, the Canadian dollar is the only currency in the Western Hemisphere that rose against the U.S. dollar in the past year. However, outside of crisis-ravaged South America, the vast majority of currencies posted large gains against the U.S. dollar, led especially by oil-rich Norway and gold-heavy South Africa. The aggressive easing of monetary policy by the Fed over the past two years, squarely aimed at averting deflation, has left the U.S. with some of the lowest short-term interest rates in the world. And, adjusting for underlying inflation trends, U.S. real short-term rates are now deeply negative and the lowest among the major currencies (Table 1). While interest rate spreads were simply not the driving force in the currency market in the late 1990s, as flows were dominated by equity market developments, the renewed focus on fixed-income product has again pushed spreads to the forefront for exchange rate movements. The relative unattractiveness of U.S. interest rates comes at an acutely awkward time for the currency, since the U.S. needs to finance a current account deficit that is headed for almost 5% of GDP this year (Chart 3). Analysts have been crying wolf about the perils of the soaring trade imbalance for years, and it appears that just like the fable, the wolf has finally arrived. History suggests that it will take almost two years for the dollar depreciation to fully work through to impact the trade numbers, and could even have a short-term adverse impact by driving up the cost of imports (the so-called "J-curve" effect). While the world waits for the weaker U.S. dollar to have an impact on trade flows, the U.S. will still need to borrow a net US$500 billion this year. Over the latest four quarters, the massive U.S. current account deficit has been funded by three primary sources: Central Bank purchases of U.S. securities, private purchases of U.S. Treasuries, and private purchases of other securities, especially corporate and agency bonds (Charts 4 and 5). Notably, net foreign direct investment has slipped back into a net outflow, as inward investment has dried up. Given the glacial speed at which the current account reacts, even a slowdown in net purchases of U.S. bonds by foreign investors will hammer the U.S. dollar, to say nothing about the impact on the currency if they began to reduce their holdings. The U.S. dollar story is not entirely bleak. Importantly, both Euroland and Japan are hardly long-term beacons for international capital inflows, as each are saddled with their own set of economic problems. U.S. productivity growth remains the envy of the world, and productivity trends have tended to drive long-term currency moves. A moderate decline in the dollar will give much-needed relief to U.S. manufacturing. In addition, some further softness in the U.S. dollar would not necessarily prove to be poison for domestic financial markets. In the great dollar slide of 1985-87, both stock and bond markets fared quite well - at least until the dollar decline reached crisis proportions by late 1987. A critical task for policymakers in the months and years ahead will therefore be managing a soft-landing for the previously high-flying U.S. dollar. Douglas Porter, CFA, Senior Economist.