NEW YORK, Nov 10: The dollar was mixed on Friday but rounded out a week of gains against European currencies as investors bet that aggressive US Federal Reserve rate cuts and fiscal spending will help the US economy rebound next year.
Despite slipping slightly on Friday, the yen has sustained a two-week winning streak against the dollar, even as analysts pinned the rise on technical factors.
The yen’s strength was dented on Friday after Japan’s top financial diplomat, Haruhiko Kuroda, sid recent yen moves were unfavorable, raising the specter of further monetary intervention to weaken the currency and support the country’s export industry.
Market players said trading would likely remain muted as US bond markets closed early on Friday and will stay shut on Monday in observance of the U.S. Veteran’s Day holiday.
Even after the European Central Bank surprised markets with a half-point rate cut on Thursday, which was more than most economists had expected, investors still shunned the euro in favor of the dollar, viewing the ECB as being behind the curve in easing monetary policy.
What’s driving this market is the unwillingness to alter one’s medium-term view that, all things being equal, there is no reason to get out of the United States just yet, said John McCarthy, director of foreign exchange at ING Barings.
The slowdown being experienced in the US is being experienced in Europe and Asia. With the aggressive fiscal and monetary stimulus, the recovery will start in the US sooner rather than elsewhere in the world.
The ECB’s half-point cut this week, coupled with similar sized moves by the US Federal Reserve and the Bank of England, bolstered hopes the US economy would be the first major economy to rebound.
In late Friday trade, the euro was up slightly on the day at 89.37 cents but down nearly 1 per cent on the week. Analysts said a crucial point of support for the euro is 88.70 cents, its Oct. 23 low.
The euro doesn’t want to rally. It struggles mightily. In my mind, the danger is we break on the downside, McCarthy said.
The Canadian dollar hit new record lows against the dollar, touching $1.6050 on a combination of weak commodity prices and worries a deep US economic slowdown will hit neighboring Canada’s economy hard.
The dollar was also up half a per cent against the Swiss franc on the week at 1.6393 and was up fractionally against the British pound at 1.4567.
Confidence in the euro has been undermined by the ECB’s reluctance to trim rates as aggressively as the Fed, citing its mandate to stick to inflation targets.
But in recent days European officials have said euro zone inflation should decline and give the bank room to cut rates. On Friday, Bank of France Governor Jean-Claude Trichet said the ECB cut rates this week with the belief that inflation was likely to fall to its 2 per cent ceiling in the first half of 2002.—Reuters