Greenback Could See Another Week of Gains
The dollar may rise against the euro for a second week on speculation that European officials will attempt to stall their currency’s advance of almost 17% in the last year, a Bloomberg News survey indicates.
Fifty-eight percent of the 53 strategists, traders and investors polled from Tokyo to New York on Friday recommended selling or holding the euro against the dollar. Almost 57% favored the U.S. currency versus the yen as Japan’s finance ministry said it may keep selling yen.
The dollar last week had the biggest gain versus the euro in a month, rebounding from a record intraday low of $1.29 on Wednesday.
Some investors said $1.30 is too high for European officials such as French President Jacques Chirac, who called for “stability” in foreign exchange markets.
“$1.30 is a psychological level,” said Sudesh Mariappa, who oversees $28 billion in global bonds at Newport Beach-based Pacific Investment Management Co., better known as Pimco. “The currency has become a component of European Central Bank thinking.”
On Friday, ECB council member Klaus Liebscher, one of 18 officials who votes on policy at the bank, said the sale of euros was always possible to help prevent a two-year climb in value from curbing demand for exports and slowing economic growth. Since the beginning of 2002, the euro has risen 41% against the dollar.
The dollar strengthened against all but one of the 16 major currencies last week, falling only against Mexico’s peso. It rose against the euro to $1.25, up from $1.27 on Thursday.
It is hard “to sell the U.S. dollar at the same pace as before,” said Allison Montgomery, a strategist at Westpac Banking Corp. in Sydney, Australia. “You’ve got physical intervention from Japan and verbal intervention from Europe” to weaken their currencies.
Against the yen, the dollar rose 3.4% to 109.07, its biggest weekly gain since February 1999. More than half the rise was Friday, when the Japanese government raised its terrorism alert.
The previous week, 82% of the 61 strategists, traders and investors surveyed suggested buying or holding the 12-nation European currency versus the dollar. Eighty-five percent of those surveyed advised buying or holding the yen versus the dollar, up from 45% a week earlier.
“Short positions against the dollar have been built up fairly aggressively in the past few months and they are now being squeezed out of the market,” said Kamal Sharma, a currency strategist at Dresdner Kleinwort Wasserstein in London.
Futures traders reduced bets for a second straight week that the yen would rise against the dollar, data from the U.S. Commodity Futures Trading Commission showed.
The difference in the number of wagers by hedge funds and other large speculators on a gain in the yen compared with those on a drop fell to about 55,200 from about 58,600 a week earlier.
“The [Bank of Japan] has sold a lot of yen and will continue to do so,” said Masahiro Fukuhara, currency strategist at Barclays Global Investors in Tokyo. “That has definitely capped the yen’s rise, though probably only for the short term.”
The euro’s climb has damped exports in the dozen nations sharing the currency, whose combined gross domestic product grew 0.3% last quarter. Japan’s economy, by contrast, grew at an annual pace of 7% last quarter, the fastest in more than 13 years, and U.S. gross domestic product expanded at an annual rate of 4%.
“Fundamentals in Europe don’t warrant” the last year’s euro advance against the dollar, said Ihab Salib, who helps manage about $198 billion in foreign and domestic assets at Federated Investors Inc. in New York.
