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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (60453)	12/8/2006 3:02:29 PM
From: regli	Read Replies (1) \| Respond to of 116555

Paulson helps dollar recover ft.com By Peter Garnham Published: December 8 2006 11:11 \| Last updated: December 8 2006 17:59 The dollar wiped out earlier losses against the euro on Friday after Hank Paulson, US Treasury Secretary, brushed off concerns about its recent slide. “I believe very strongly that a strong dollar is in our nation’s best interest and I feel very good about the strength of our economy right now,” said Mr Paulson. The comments came in thin trading conditions as traders in London were leaving work, helping the dollar rise 0.5 per cent against the euro to $1.3220. The dollar had earlier lost ground as robust US economic data did little to lift the bearish mood enveloping the currency. Figures revealed that US businesses had added 132,000 jobs to their payrolls last month, beating expectations for a rise of 110,000. After an initial rally, the dollar quickly ran out of steam. Tania Kotsos, strategist at RBC Capital Markets, said the greenback’s failure to advance on data that should have been dollar-positive reflected the market’s disenchantment with the US currency. “The market was looking for the next trigger to sell the dollar, rather than buy it,” she said. Over the week the dollar was 0.9 per cent stronger against the single currency. The euro was left little changed by the European Central Bank’s decision to raise eurozone interest rates by 25 basis points to 3.5 per cent. The rise was widely expected, but market expectations of further increases were left clouded as Jean-Claude Trichet, president of the ECB, kept his options open at the post-decision press conference. Mr Trichet said eurozone monetary policy remained accommodative, a phrase consistent with further rate increases. Cuts to the ECB inflation forecasts for 2007 and 2008, coupled with a warning of the downside risk to growth, led investors to question the timing of the ECB’s next move. The yen advanced early in the week after Kiyohiko Nishimura and Atsushi Mizuno, Bank of Japan board members, struck a hawkish tone on interest rates. Mr Mizuno said it would be wrong to think the central bank needed to wait until all economic indicators were strong before raising rates again, while Mr Nishimura said the bank could lift rates even if its views on monetary policy were not those of the financial markets. Their comments helped heighten expectations that the Bank of Japan would raise Japanese interest rates by 25bp to 0.5 per cent in either December or January. The yen retreated yesterday after Japanese gross domestic product for the third quarter was revised down from 2 per cent on an annualised basis to 0.8 per cent. Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ, said: “The data makes a mockery of the possible impending rate hike by the BoJ.” He added: “The more questionable the circumstances are, the more likely the yen will tumble in the aftermath of an inappropriate monetary policy decision.” The yen fell 0.9 per cent against the dollar to Y116.20 on Friday and 0.5 per cent against the euro to Y153.86. Over the week, the yen fell 0.7 per cent against the dollar and 0.1 per cent against the euro. The pound came under pressure, edging away from its 14-year highs against the dollar. As expected, the Bank of England left UK interest on hold at 5 per cent after its policy-setting meeting on Thursday. Doubts were raised about whether the central bank would have to raise rates further after the UK Treasury announced tax increases of about £2bn in its pre-Budget report. UK manufacturing output was shown to have suffered its biggest monthly decline in a year in October and these data also hit the pound. Over the week, sterling fell 1.2 per cent to $1.9570 against dollar and 0.6 per cent to £0.677 against the euro.