Wish I was in a bar myself :)
Dollar Ekes Out Gains as Rising Stocks Offset Concerns Over Clinton, Rates
Dollar Gains as Stock Rally Offsets Rate Cut Concerns (Update2) (Adds detail on stock gain in 5th paragraph. Updates rates.)
New York, Sept. 8 (Bloomberg) -- The dollar rose against most currencies as U.S. stocks soared, offsetting concern an independent counsel's report may undermine Bill Clinton's presidency.
The dollar was held back from further gains on speculation the Federal Reserve may cut U.S. interest rates. Lower rates hurt the dollar by reducing the yield on dollar deposits. ''A lot of people are buying dollars to get into stocks,'' said Doug York, director of foreign exchange at Campbell & Co., which manages $1 billion in assets in Towson, Maryland. Still, ''there are some problems on the political landscape and a higher probability of lower interest rates.''
In late New York trading, the dollar was at 1.7305 marks, up from 1.7260 yesterday, though down from an intraday high of 1.7365 marks. It rose to 132.20 yen from 131.90, though it's down 10 percent from an 8 1/2-year high Aug. 11.
The benchmark Dow Jones Industrial Average surged 380.53 points, in its biggest point gain ever, rising 5 percent, to 8020.78. Those gains are good for the dollar in the short term because global investors need the currency to purchase U.S. stocks.
Fed Chairman Alan Greenspan suggested Friday that rates might be cut if recessions in Asia and economic trouble elsewhere in emerging markets slow U.S. growth. While a rate cut would hurt the dollar in the long term, Greenspan's comments offered solace to stock investors because lower rates make it easier for companies to borrow money to invest and expand operations. They also encourage consumer spending by reducing the cost of credit.
The dollar's gains were checked by concern that independent counsel Kenneth Starr may unveil information that could hurt President Clinton. Starr's report on his 4 1/2-year investigation of Clinton is expected to go to Congress this month, the New York Times and Washington Post reported. ''The foreign exchange market is getting worried about what's in Ken Starr's report,'' said Henry Willmore, a senior economist at Barclays Capital. Signs of political uncertainty in the U.S. can prompt some traders to flee the dollar.
Covering Losses
Some analysts say the dollar could soon resume its decline against the yen as investors sell dollars to compensate for losses in emerging markets. In recent months, many investors had borrowed yen at Japan's low lending rates, then sold those yen to finance other, high-yielding investments, often in risky emerging markets. ''People are getting out of profitable trades to cover losing trades,'' said York of Campbell & Co.
Also, a continuation of the yen's recent gains against the dollar would raise the price of Japanese exports and relieve pressure on U.S. exporters, economists said. ''I would welcome'' a drop in the dollar's value, said Van Bussmann, chief economist at Chrysler Corp., who added that the currency's ''natural level'' -- one that accurately reflects U.S. and Japanese economic fundamentals -- is at 100 yen.
The dollar's strength against the yen the last few years has increased the price of U.S. products abroad, giving some Japanese exporters a leg-up over their U.S. counterparts and helping widen the U.S. trade deficit. It also has meant overseas revenue converts to fewer dollars when companies bring profits home.
Some companies, including Gillette Co., which manufactures grooming products, see the dollar falling further in the next few months. A Gillette spokesman said the U.S. currency could be hurt if the rebound in U.S. stocks is short-lived.
To be sure, Japan's economy remains mired in its worst recession in a half century and is unlikely to recover fast enough to prompt the Bank of Japan to raise lending rates any time soon, analysts said.
The economy is in ''a very severe situation'' as plunging financial markets sap consumer confidence and as companies cut spending, the government said today in its monthly economic report.
German Rates
The dollar was also supported against the mark after a report showed a smaller-than-expected decline in Germany's jobless rate, fanning speculation interest rates there won't head higher any time soon. ''The higher unemployment is, the harder it is to raise rates,'' a situation that makes Germany's money-market return and therefore the mark less attractive, said Ed Garston, a currency analyst at I.D.E.A., a market research firm in London.
German unemployment fell 24,000 in August, less than the 35,000 decline forecast by economists in a Bloomberg News poll. Still, the unadjusted jobless rate fell to 10.6 percent from 10.7 percent.
Bundesbank council member Olaf Sievert also cemented expectations for steady German rates, saying ''there are less reasons than before for the core countries of the European Union, which already have low interest rates, to raise them any time soon.''
Elsewhere, the British pound fell to $1.6565 from $1.6675 yesterday. The dollar rose to 1.4167 Swiss francs from 1.4100 francs and to 5.7945 French francs from 5.7830 francs. It was little changed at 1708.25 Italian lire from 1705 lire and fell to 1.5187 Canadian dollars from 1.5220 dollars. |
