Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Euro Impact on Gold, USD ... -- Ignore unavailable to you. Want to Upgrade?

To: banco$ who wrote (227)	1/14/1999 7:58:00 AM
From: banco$	Respond to of 289

Dollar dives vs euro amid Brazil FX move, Dow fall By Deborah Lagomarsino, Bridge News New York--Jan 13--The dollar dove against the euro in the wake of Brazil's de facto devaluation of the real and the Dow Jones industrial average's sell-off, with dealers nervous about the potential US economic fallout from the latest bout of turmoil in Latin America's largest nation. Interestingly, the dollar gained ground against the yen, continuing to benefit from the Bank of Japan's intervention Tuesday and from aggressive euro/yen buying. The euro began surging against the dollar in very early trade as news of Brazil's devaluation filtered through FX desks. The head of Brazil's central bank President Gustavo Franco resigned, with his successor Francisco Lopes announcing the bank was widening its real trading band to 1.2-1.32 real to the US dollar from 1.12-1.22 real to the dollar. The real immediately moved to the upper level of the trading band, a de facto 9% devaluation. "Brazil is crumbling. The currency band has been widened and the real has depreciated, but the new rate probably will not hold," said Chris Widness, international economist at Chase Securities. "The knee-jerk reaction among the major currencies has been to sell the dollar and buy the euro. Indeed if Brazil takes the rest of Latin America down with it, the economic and policy implications for the United States will be significant," Widness said. While the dollar was sold aggressively against the euro, traders and analysts noted that it doesn't quite add up as European banks as a whole are more exposed to Latin America than US banks. "The euro block as a whole has a bigger loan exposure to Latin America, but the proximity of Brazil to the US has everyone equating that with a US problem rather than a European problem," said Jeff Yu, senior dealer at Sanwa Bank. The DJIA quickly plummeted 261 points not long after the opening bell, but later trimmed its losses to close down 125 points at 9,349. news.bridge.com Lopes said Brazil's decision to change its FX policy was not in response to movements in financial markets and said Brazil wants more liberty from markets to determine its FX rate. He added that a "freer" FX market is good for Brazil's stability and said the FX move opens the way to an interest rate cut. He also said Brazil doesn't intend t o freely float the real. Lopes also said Brazil has not sought further money from the IMF or G7. The euro's climb against the dollar was stunted at $1.1790 amid talk of sales by a European central bank and by the DJIA's ability to trim its losses as the day progressed. Also helping market sentiment were remarks from US Treasury Secretary Robert Rubin that Brazil's action today enhanced the flexibility of its exchange rate system and "reaffirmed its commitment to implement the program of fiscal adjustment and other reforms agreed with the International Monetary Fund last year." Rubin's continued support of Brazil came as little surprise to the markets, but suggested to some that at this stage officials are seeking to give verbal support to Brazil, looking for action from Brazil before doing anything more. The IMF and other international lenders assembled a $41.5 billion aid package for Brazil in November, but Brazil needs to pass fiscal reform measures to get the money. "They will try to contain the Brazil crisis with words and then actions once and if Brazil enacts its fiscal reforms," one analyst said. Euro/yen climbed as dealers flocked to the euro as a safe-haven from the Brazil-inspired financial market storm, with short-covering also said driving gains. (note, euro portion of bulletin only)