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Euro beats dollar { January 14 2003 }

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Dollar Plumbs to New 3-Year Low Vs. Euro

Tuesday, January 14, 2003; 8:29 AM

By Burton Frierson

LONDON (Reuters) - The dollar dredged a new three-year low against the euro and a four-month low against the yen on Tuesday as investors fretted over U.S. retail sales data due at 8:30 a.m. EST.

The market has conditioned itself to disappointment after Friday's shock fall in U.S. payrolls data, which darkened the outlook for the economy and punished a dollar already weakened by tensions with Iraq and North Korea.

This time economists expect retail sales, excluding autos, to have risen 0.2 percent in December compared with 0.5 percent in November, although sales including autos are forecast up 1.2 percent. The U.S. consumer sector accounts for two-thirds of economic activity there and any signs of faltering consumption would have widespread ramifications on investor confidence.

"If the headline number disappoints, the dollar could come under pressure," said Ian Stannard, foreign exchange strategist at BNP Paribas.

"That would suggest even the auto sales were not coming up to expectations -- the one sector which had been holding up with the aid of incentive programs."

The euro had risen as high as $1.0597, adding to a string of three-year peaks against the battered dollar this month. The dollar was at 1.3818 Swiss francs, close to its four-year trough of 1.3780 set on Friday.

The usual warning from Japanese monetary authorities against a strengthening yen did not prevent the dollar from falling as low as 118.00 yen in Europe, a level not seen since September. The greenback was also mired at a three-year lows against a broad basket of currencies.

Dealers in Tokyo reported the dollar had come under pressure in early Asian trading on a rumor that an influential U.S. investment advisory firm was to release a report saying that Washington would abandon its strong dollar policy.


The retail sales data offers the first of several reports this week showing how the U.S. economy fared at the end of 2002 and how it is holding up at the start of the new year.

"The problem is that even with that great headline figure, the underlining annualized trend is still weak. The market needs to have a spectacular surprise in order for the dollar to benefit from the data," said Shahab Jalinoos, currency strategist at UBS Warburg.

Meanwhile, the euro found support from economic data.

French companies cranked up output in November after a sharp dip in October, propelling industrial production 1.2 percent higher. The rise was three times more than a consensus forecast for a 0.4 percent increase.

Coming a day after Germany posted a stronger-than-expected 2.5 percent jump in November output, the French figures bolstered prospects of the euro zone's two biggest economies gathering momentum and escaping recession.

"We're seeing broad-based dollar weakness. Retail sales will be very important for the U.S. economic outlook and strong euro zone data also encouraged people to buy the euro against the dollar," said Francesca Fornasari, foreign exchange economist at Lehman Brothers.

Economic uncertainties aside, the dollar has been under pressure from higher investor risk aversion from a possible U.S.-led war against Iraq and a stand-off over North Korea's nuclear program.

But on Tuesday China said it was willing to host talks between Washington and Pyongyang and senior U.S. envoy James Kelly headed for Beijing.


Zembei Mizoguchi, who succeeded Haruhiko Kuroda as the Finance Ministry's top financial diplomat on Tuesday, said the yen's excessive strength was not good for the domestic economy and that officials were on alert.

Mizoguchi also reiterated that recovery prospects for the U.S. economy were still stronger than those of Japan or Europe, meaning fundamentals did not warrant a stronger yen in the medium term.

Dealers say they are increasingly wary Japanese authorities might spring into action to counter the yen's export-damaging gains against the dollar.

"Sooner or later they will have to match their words with actions, and we're a lot, lot closer now. It's only a matter of time, if we stay down here, before the Japanese authorities are back in," said Neil Parker, market strategist at Royal Bank of Scotland Financial Markets.

2003 Reuters

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