|
Greenback slides on lack of fed worries { January 6 2004 } Original Source Link: (May no longer be active)
http://www.canada.com/national/nationalpost/financialpost/story.html?id=ba61fb16-4481-4862-b4b9-e8ccc872e12dhttp://www.canada.com/national/nationalpost/financialpost/story.html?id=ba61fb16-4481-4862-b4b9-e8ccc872e12d
Greenback slides on lack of Fed worries
Governor's remarks back speculation rates will not rise
Peter Morton, Washington Bureau Chief
Financial Post
January 6, 2004
WASHINGTON - The U.S. dollar fell again yesterday in the wake of comments from a U.S. Federal Reserve governor that there is no dollar crisis, another hint the White House is quietly pushing for a weaker currency.
Ben Bernanke, a Fed governor, insisted the risk of a weakened U.S. dollar is "quite low."
"Looking at movements of the dollar against a single currency can be misleading about overall trends,'' he said in a speech to the American Economic Association in San Diego, referring to the slide against the euro.
"For now, I believe that the Federal Reserve has the luxury of being patient," he added, noting the U.S. dollar's decline is still not putting any inflation pressures on the U.S. economy even though imported goods will soon be more expensive.
Although the administration officially supports its strong U.S. dollar policy, there is widespread speculation in currency markets that Mr. Bush wants to see a weaker dollar to make it easier for U.S. exporters to sell abroad.
"It reaffirms the view the market has that U.S. policymakers are happy with the decline," said Simon Flint, a market strategist with the Bank of American Corp. in Singapore. "They're not going to stand in the way of further depreciation."
The U.S. dollar fell to a record low against the euro, hitting US$1.2674. The U.S. dollar also weakened against the yen despite efforts of the Japanese government to support its value by selling off its own currency. The dollar fell to yen 106.1 from 107.07 in trading yesterday.
"Mr. Bernanke made clear the Fed is not particularly concerned about the dollar's latest decline," said Marcel Kasumovich, head foreign exchange strategist for the major industrialized nations at Merrill Lynch & Co. in New York.
"It's one further indication the Federal Reserve is inclined to keep interest rates at low levels for a fairly long period of time," he said, predicting the U.S. dollar will end this year at US$1.33 per euro and hit US$1.40 per euro by mid-2005.
Stock markets largely ignored the slump in the U.S. dollar, focusing instead on the latest piece of U.S. economic news that again pointed to a stronger than expected recovery. The U.S. Commerce Department reported construction rose by 1.2% in November over October to a seasonally adjusted annual rate of US$934.5-billion.
This is the fifth consecutive month that the annual rate has set a record as the U.S. housing boom, fuelled by low interest rates, continues to pump strength into the economy.
The Dow Jones industrial index rose by 134.22 points, or 1.3%, to remain firmly above 10,000, closing at 10,544.07. The Nasdaq composite index also closed in on a two-year high, jumping 40.68 points, or 2%, to end at 2,047.36. In Toronto, the S&P/TSX composite index also 87.96 points to 8,381.66.
David Rosenberg, chief North American economist also at Merrill Lynch, said it appears Mr. Bernanke is signalling the Fed is in no hurry to increase the key Fed rate from its 45-year low of 1% even as the U.S. economy picks up steam.
"These guys are tightening, folks, no matter what the consensus of the economics community says about it," he said.
The decline of the U.S. dollar is partially attributable to the growing spread between U.S. and European interest rates. The Fed's benchmark rate is half that of the European Central Bank.
Despite the drop in the U.S. dollar, many economists such as Mr. Rosenberg have been ratcheting up their growth forecasts for this year. Merrill Lynch now sees growth in U.S. gross domestic product at about 4% this year, reflecting similar predictions from other private-sector economists.
© National Post 2004
|
|
