LONDON, Dec 10: The dollar retreated against the euro on Tuesday on expectations that a fiscal injection by US President George W. Bush and his new economic team could lead to a softer US unit, economists said.
The single European currency climbed to $1.0131 from 1.0107 late on Monday in New York.
The dollar traded at 123.23 yen from 123.34 on Monday.
Economists said that Bush and his new treasury secretary, named as railroad executive John Snow by the US president Monday but subject to approval by the Senate, are unlikely to try to talk the dollar down.
But with Bush pledging a stimulus plan to help kick-start the sluggish US economy — a move likely to pump up the already bulging US trade and budget deficits — the dollar could remain under pressure next year, they added.
It looks increasingly evident that the US is now switching its policy focus to a more domestically orientated policy and obviously going for growth and jobs, said BNP Paribas economist Iain Stannard.
So it looks like there’ll be further significant fiscal stimulus in the US which could well actually be a bit of a negative for the dollar given that it’s likely to put the US twin deficits under further pressure, he added.
She said that once attention refocused on fundamentals and the interest rate outlook, it should become obvious that there are no compelling reasons to sell the dollar versus the yen, the euro or sterling.
Sterling was also in focus after official figures showed that the British trade deficit soared to a record 3.56 billion pounds in October from a revised shortfall of 2.74 billion pounds the previous month.
Experts said the ballooning deficit was a result of buoyant consumer spending sucking in imports even as exports are falling owing to the weak global economy and strong pound.
Certainly the widening trade numbers are very worrying, said Stannard. The imbalances within the UK economy are getting to a point now whereby it will start to have an impact on the currency, he warned.
But with the dollar on the decline, the figures had a muted immediate impact on the pound.
The euro was changing hands at 1.0131 dollars from 1.0107 late on Monday in New York, 124.84 yen (124.68), 0.6403 pounds (0.6395) and 1.4737 Swiss francs (1.4735).
The dollar was being quoted at 123.23 yen (123.34) and 1.4547 Swiss francs (1.4577).
The pound was at 1.5821 dollars (1.5796), 195.01 yen (194.87) and 2.3020 Swiss francs (2.3031).
On the London Bullion Market, the price of an ounce of gold slipped to $325.60 from 325.75 late on Monday. —AFP