LONDON, JANUARY 31: The dollar was broadly upbeat on Monday, staying within a cent of last week's record highs against the euro in cautious trading ahead of a closely watched Federal Reserve policy meeting this week. The euro, which tumbled as low as $0.9733 on Friday, struggled for breathing space in the absence of tangible help from European officials and as the dollar basked in the glory of last week's robust US growth data."It's almost as if the euro is battering its head against the wall of a very strong dollar," said Mike Moran, treasury economist at Standard Chartered Bank in London. "It's going to be very difficult for the emphasis to shift away from the U.S. And into the euro to take the euro back up above parity." The dollar also maintained an upper hand against the yen, hovering within about a half yen of a three-month peak of 107.26 it set on Friday.
"The dollar is very much in the pole position," said Neil MacKinnon, senior currency strategist at Merrill Lynch in London.
"The exceptionally strong GDP numbers we saw on Friday were just a reminder of how attractive the economic growth differential in favour of the dollar is. " Even though the robust U.S. Gross domestic product and employment cost index for the fourth quarter of 1999 on Friday fuelled expectations of an aggressive Fed tightening, triggering a 2.62-percent sell off in the Dow Jones industrial average, analysts noted that the link between US stock prices and the dollar was weakening.
Moran at Standard Chartered noted that while short-term US interest rates were firm as the Fed was widely expected to raise rates by 25 basis points at its two-day policy meeting ending on Wednesday, long-term yields already made a downturn on Friday. "I think the market is trying to tell us that we're coming to a point where interest rates are peaking soon," he said.
Some traders also said increased interest rate differentials were by themselves a supportive factor for the dollar, although there was also talk that the European Central Bank could raise rates at its policy meeting on Thursday as well. A perceived lack of concrete ECB support for the euro, which is now more than 16 percent below where it began trading against the dollar in January 1999, continued to undermine sentiment on the single European currency.
A draft statement for Monday's meeting of European Union finance ministers said the euro had the potential to appreciate - a restatement of the bloc's official line on the currency.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.