12-18-2003, 04:48 AM
<b>Dollar Sinks to New Low Vs Euro</b>
Wednesday December 17, 4:20 pm ET
By Gertrude Chavez
NEW YORK (Reuters) - The dollar plumbed fresh lows against the euro and sank against other major currencies on Wednesday, undermined by positive news from Europe and still hurting from expectations that U.S. rates will remain low for some time.
The euro broke through the psychologically important $1.2400(EUR=) level, reaching a record $1.2418 earlier in the session, before trading back down to $1.2397. This is the 12th record high of the past 14 trading sessions for the euro, which has surged almost 19 percent this year.
"The dollar's fall was a combination of a few things. The tax package that came out of Germany was a slight positive even though some people were slightly disappointed with the size of the tax cut. But nonetheless, Germany is actually doing something and that's really good," said Andrew Busch, global foreign exchange strategist at BMO Nesbitt Burns in Chicago.
German newspapers reported on Wednesday that the landmark German tax and welfare reform deal agreed this week will produce over 1 billion euros more in tax relief next year than earlier announced.
Busch also said Tuesday's weaker-than-expected consumer prices still weighed on the greenback, as the data suggested that inflation is quite tame and as a consequence U.S. interest rates will stay at their currently low level for quite some time.
The dollar index slipped to a seven-year low of about 87.79 on Wednesday as market sentiment on the currency remained bearish. The index (=USD), a measure of the dollar against a basket of currencies, was trading at 87.94.
Despite a quiet trading day, the dollar posted substantial downward moves against most of its major counterparts. Analysts say that as the end of the year approaches, the market tends to become illiquid, so any moves could jolt the currency.
Against the yen, the greenback fell slightly to 107.44 yen (JPY=), with traders on the alert of possible Japan intervention to weaken the Japanese currency.
The dollar hit a seven-year low against the Swiss franc of 1.2514 francs(CHF=), before edging up to 1.2542 francs, down 0.4 percent on the day.
Sterling climbed for a second straight day to an 11-year high of $1.7667(GBP=) before drifting back to $1.7655.
ECB'S ISSING SAYS EURO RATE BACK TO NORMAL
European Central Bank Chief Economist Otmar Issing was quoted on Wednesday as saying the euro's exchange rate against the dollar was back to normal, having reached the same level as around the time of its introduction of $1.17 in 1999.
Analysts also said one factor contributing to the euro's rise was a report from Market News International citing unidentified ECB sources saying the bank would not intervene unless the euro rose above $1.35.
"Things were relatively quiet this morning until this story came out suggesting from ECB sources that they did not see the need for any intervention unless the euro got to $1.35, and of course, whenever you put a number out there, the markets get very excited," said Robert Sinche, global head of currency strategy at Citibank in New York.
A spokesman for the ECB declined to comment on the report, following the central bank's standard policy not to comment on currency markets or on reports about possible market action.
But still the surging euro has provoked concern among European companies that export to the United States, citing the negative impact of the single European currency's strength on their bottom lines.
The co-chief executive of Airbus parent EADS said the company would have to take radical new cost-cutting measures and put additional pressure on suppliers if the euro rose to the $1.30-$1.35 level for a lengthy period of time.
The Norwegian central bank, meanwhile, made a surprise rate cut of 25 basis points to a record low 2.25 percent, sending the Norwegian crown to a six-week low against the euro of 8.2668 crowns (EURNOK=), and dropping it to 6.7061 crowns (NOK=) against the dollar.
Wednesday December 17, 4:20 pm ET
By Gertrude Chavez
NEW YORK (Reuters) - The dollar plumbed fresh lows against the euro and sank against other major currencies on Wednesday, undermined by positive news from Europe and still hurting from expectations that U.S. rates will remain low for some time.
The euro broke through the psychologically important $1.2400(EUR=) level, reaching a record $1.2418 earlier in the session, before trading back down to $1.2397. This is the 12th record high of the past 14 trading sessions for the euro, which has surged almost 19 percent this year.
"The dollar's fall was a combination of a few things. The tax package that came out of Germany was a slight positive even though some people were slightly disappointed with the size of the tax cut. But nonetheless, Germany is actually doing something and that's really good," said Andrew Busch, global foreign exchange strategist at BMO Nesbitt Burns in Chicago.
German newspapers reported on Wednesday that the landmark German tax and welfare reform deal agreed this week will produce over 1 billion euros more in tax relief next year than earlier announced.
Busch also said Tuesday's weaker-than-expected consumer prices still weighed on the greenback, as the data suggested that inflation is quite tame and as a consequence U.S. interest rates will stay at their currently low level for quite some time.
The dollar index slipped to a seven-year low of about 87.79 on Wednesday as market sentiment on the currency remained bearish. The index (=USD), a measure of the dollar against a basket of currencies, was trading at 87.94.
Despite a quiet trading day, the dollar posted substantial downward moves against most of its major counterparts. Analysts say that as the end of the year approaches, the market tends to become illiquid, so any moves could jolt the currency.
Against the yen, the greenback fell slightly to 107.44 yen (JPY=), with traders on the alert of possible Japan intervention to weaken the Japanese currency.
The dollar hit a seven-year low against the Swiss franc of 1.2514 francs(CHF=), before edging up to 1.2542 francs, down 0.4 percent on the day.
Sterling climbed for a second straight day to an 11-year high of $1.7667(GBP=) before drifting back to $1.7655.
ECB'S ISSING SAYS EURO RATE BACK TO NORMAL
European Central Bank Chief Economist Otmar Issing was quoted on Wednesday as saying the euro's exchange rate against the dollar was back to normal, having reached the same level as around the time of its introduction of $1.17 in 1999.
Analysts also said one factor contributing to the euro's rise was a report from Market News International citing unidentified ECB sources saying the bank would not intervene unless the euro rose above $1.35.
"Things were relatively quiet this morning until this story came out suggesting from ECB sources that they did not see the need for any intervention unless the euro got to $1.35, and of course, whenever you put a number out there, the markets get very excited," said Robert Sinche, global head of currency strategy at Citibank in New York.
A spokesman for the ECB declined to comment on the report, following the central bank's standard policy not to comment on currency markets or on reports about possible market action.
But still the surging euro has provoked concern among European companies that export to the United States, citing the negative impact of the single European currency's strength on their bottom lines.
The co-chief executive of Airbus parent EADS said the company would have to take radical new cost-cutting measures and put additional pressure on suppliers if the euro rose to the $1.30-$1.35 level for a lengthy period of time.
The Norwegian central bank, meanwhile, made a surprise rate cut of 25 basis points to a record low 2.25 percent, sending the Norwegian crown to a six-week low against the euro of 8.2668 crowns (EURNOK=), and dropping it to 6.7061 crowns (NOK=) against the dollar.