Investor fears over Europe's debt crisis and perceived weakness in the U.K. economy pushed the dollar to its highest in 16 months against the euro and three months against the pound Wednesday.
The euro was hurt by speculation that one or more euro-zone countries could soon have their credit ratings cut, with France seen as the immediate target of such a move. Early in the session, the French government denied market rumors that the euro zone's second-largest country had been notified by Standard & Poor's that a loss of its triple-A status was imminent.
Weak U.K. trade figures led to a broad rout in pound sterling, once viewed by analysts as an alternative to the dollar as a safety currency.
"I expect dollar outperformance across the board," said Tommy Molloy, chief dealer at FX Solutions, particularly because the U.S. economy appears resilient in the face of weakness abroad. "Good news for the U.S. is good for the dollar" rather than being a reason for investors to seek out higher-yielding stocks and currencies.
The euro fell as low as $1.2661, its weakest since September 2010, before recovering to $1.2705 by late Wednesday. Against the Australian dollar, the common currency slid to its lowest ever at 1.2319.
The euro was recently at ¥97.714 from ¥98.20. The common currency is expected to slide further, wrote analysts at Capital Economics in London, because of the relative prospects for monetary policy in the euro zone and the U.S., and the likelihood of a break-up of the European Monetary Union this year. Their year-end forecast for the exchange rate stands at $1.10.
The Federal Reserve may have to tighten monetary policy before many now expect, a central
bank official said in a speech that also said the U.S. economy will do better in 2012 amid improved labor markets.
"I believe economic conditions may require the Fed to raise rates before mid-2013," Federal Reserve Bank of Philadelphia President Charles Plosser said in the text of a speech delivered to an audience in Rochester, N.Y.
The U.S. economy improved across all regions in the final six weeks of 2011, boosted by strong holiday sales, the Federal Reserve said in a report out Wednesday.
However, the Fed's studies of regional economies, known as the "beige book," showed that persistent weakness in housing kept a lid on growth in most areas, while inflation pressures were broadly limited, leaving the door open for more central bank stimulus.
Late Wednesday, the dollar bought about ¥76.91 compared with ¥76.85. The dollar traded at 0.9542 Swiss franc from 0.9493 franc.
The pound suffered its deepest losses against the dollar, sliding to $1.5310 in late-morning trading, its weakest since Oct. 6. It was at $1.5320 in late trade from $1.5485 late Tuesday.
Swapping euros into dollars is getting cheaper, with the three month euro dollar cross currency basis swap tightening to minus 87.5 basis points from minus 89.5 basis points Tuesday. The European Central Bank's move to offer three-year loans to banks at a discount as well as the cessation of year-end funding pressures have helped. Analysts expect this indicator of dollar funding stress to tighten to the minus 80 basis point range and then stabilize because worries over the euro zone still persist.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 81.30 from 80.805 late Tuesday.
read more: Olympus Wealth Management
No comments:
Post a Comment