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Sat 29 Nov, 2003 11:05 am
BUSINESS & FINANCE
Euro rises above $1.20 for first time
Posted: Saturday, November 29, 9:38am EST
The euro broke through $1.20 for the first time in its nearly five-year history Friday, surging amid fears about the US trade and budget deficits in thin post-Thanksgiving trading. The 12-country currency hit $1.2015 in European trading - the highest since it was introduced on Jan. 1, 1999 - then slipped back to $1.1995. It started the European trading day at around $1.19, then headed steadily up, breaking through the previous high of $1.1979 from Nov. 19. In New York, the euro traded at $1.1987 late Friday. Economists and currency strategists said short-term trading tactics and thin volume on the day after the US Thanksgiving holiday played a role. Lower trading volume can make markets more volatile. But general fears about the US trade and budget deficits - factors that can undermine a country's currency - continued to weigh on the dollar as they have for months. The weakening currency helps US businesses against foreign competitors by making US goods cheaper in comparison. But it makes imports and foreign travel more expensive for Americans. The dollar also hit a five-year low against the British pound, making the sight of Big Ben and parliament about 7 percent more expensive since the start of this year. The euro bill for that favorite hotel on the Left Bank in Paris will cost 14 percent more
What effect will the weakening of the dollar have on the US economy. Help, hurt or be neutral?
I guess, it may be helpful. It will increase competitiveness of the U.S.-made exported goods, decreasing this of the European economic rivals' products.
It will however I believe, raise the price of imports from Europe to the American consumer.
Well, the British Pound ans Swiss Franc rise as well.
And - not to forget! - the gold price.
The USA import far more than they export.
This means that the USA is heavily reliant on foreign money coming into the country and on foreign confidence in the U.S. economy and U.S. investments, including stocks and bonds.
That could be somewhat risky, because it means, foreigners are building a greater stake in the U.S. economy, and the USA is paying interest to investors abroad.
And when the dollar falls even more and when the foreign investors take their money at once out of the US-economy ...
I don't know.
But on short sighted view, it's really only good for the American economy.
au1929 wrote:It will however I believe, raise the price of imports from Europe to the American consumer.
Well, this may be in favor of the domestic industries, making their products more competitive and more attractive. Of course, some raw materials may become more expensive as well, if they are valued in , but I do not think that there are many such stuffs. The only danger is possibility of Russia's switch to from $$, this may affect prices of oil and increase dependency on the Saudi supplies that are valued in $$.
here is a canadian point of view. in the 1960's we got 1.05 u.s. $ for a canadian $. of course, the canadian $ started sliding and sliding ... finally in 2002 we got about 62 cents u.s. for a canadian dollar ! in the meantime the government with the support of some export industries kept telling canadians how wonderful this was ! look at all the grain, lumber, iron ore ... we were able to sell on the worldmarket ! some canadian economists warned - quite rightly - that the way to have a healthy economy is NOT by cheapening of the currency, but by competiveness and selling superior products to the world. just look at countries such as brazil and argentina: are their people better off with currency spiralling ever downward ? i think not. eventually there was a rude awakening: foreign investors started pulling money out of canada, factories had to pay ever more money to buy foreign equipment to upgrade , loans were becoming more costly because foreign lenders were factoring in the risk of the canadian $ further falling. well, we managed to arrest the dive and within the last year the canadian dollar has beeen trading upwards and now sits at about 75 to 77 cents u.s. ; still not spectacular, but at least the slide has stopped. another thing canada found out - the hard way - is, that once investors become disenchanted it is difficult to get them back. i think it is somewhat like selling a lousy product; once customers have had a bad experience, it is difficult and costly to attract them again. the most interesting thing in this whole "exercise" has been the fact that exports have not suffered from the appreciation of the canadian dollar. economists now say that canadian manufactures have been forced to think and operate smarter, and that they have in effect benefitted from the rise in the exchange rate. i think i learned early on that it is not how hard you work, but how smart you work. of course the u.s. economy is many times the size of the canadian economy and a direct comparison would be foolish. perhaps the u.s. dollar was overvalued and is now finding a more appropriate trading range. only time will tell. ... here is a story i remember from a management seminar : the instructor told us that physics (as an example) is a fairly simple science. you perform your experiment and if it does not work, you try another one. in economics, he stated, it will usually take quite a few years to learn whether or not the experiment was successful, by then the economy may be in ruin. leaving you on this happy note ... CHEERS ! hbg
hamburger wrote:. . . but by competiveness and selling superior products to the world.
Every once in a while, there comes along a statement with which I agree completely. This is one of them.
Steissd! Welcome back. I was getting worried about you.
Re: Euro rises above $1.20
au1929 wrote: What effect will the weakening of the dollar have on the US economy. Help, hurt or be neutral?
It has two impacts with opposite signs. One impact is that a weakening dollar boosts demand for American products and reduces demand for non-American products, which stimulates the American economy. The other impact is that a weakening dollar reduces foreign investment in the American economy and increases American investment abroad, which slows down the American economy. I don't know whether the sum of both effects will be good or bad for America, and I doubt anyone else does.
Nearly one year after this thread started ...
Quote:
Dollar at record low against euro
The dollar fell to a record low against the euro on Friday, with analysts forecasting more declines to come.
The currency market is not optimistic about another Bush term
Meanwhile, oil prices moved in the opposite direction, with a barrel of US light crude ending up 79 cents to $49.70 on fresh Iraqi security concerns.
With the US forces stepping up the pressure on Iraqi rebels in Falluja, Brent crude also finished up in London, gaining 41 cents to close on $46.42.
Analysts believe the US will try to keep the dollar weak to boost exports.
They point to America's giant trade deficit.
Further falls?
The US currency dropped as low as $1.2962 against the euro on Friday.
The fall came despite positive jobs data from the US Labor Office on Friday, showing that 337,000 new positions were created in the US in October - double Wall Street's expectations.
"What this (the dollar's fall) shows is that the structural problems in the US economy are completely dominating the positive cyclical news that we had today from payrolls [unemployment figures]," said Aziz McMahon, a strategist at ABN Amro in London.
"It seems now that the longer-term investors like pension funds and perhaps monetary authorities are either hedging their dollar risk or moving assets out of the United States.
"It looks like the dollar has further to fall," Mr McMahon said.
European concern
Richard Franulovich of Westpac Banking said Friday's dollar fall was "nothing short of stunning".
"This is a pretty good guide at just how entrenched negative sentiment is toward the dollar," he said.
In Europe the dollar's decline, and in turn - the euro's rise - raised fears that it will hit European exports.
The euro is now 57% above its all-time low against the dollar of 82 cents from October, 2000.
French President Jacques Chirac said he was "a little bit worried about the weakness of the dollar".
Speaking at a summit of European leaders in Brussels he hinted that the European Union should take action.
"This should provoke certain reactions on our part," he said.
Source
Quote:Dollar at record low against euro
Cool! I had to pay a major hotel bill today. The bill was in dollars, and of course I earn my living in Euros. So that's very good news. Thanks!
Just ordered about a dozen cd's from the USA - instead of usual snailpost (to reduce the postage costs) no with 'express airmail' - and still cheaper than half a dozen of them here :wink:
Now the EU is expressing some concern about the "strong" euro.
Now? This goes on -subliminally- really for about a year or so :wink:
(I don't think that the is
so strong, but actually the $ is soooo weak - just ordered a couple of more cd's in the USA
)
USA > Economy
from the November 22, 2004 edition
Worldwide effects of sinking dollar
Its decline to a nine-year low is impacting everything from the price of goods at Wal-Mart to the vigor of Europe's economy.
By David R. Francis | Staff writer of The Christian Science Monitor
The sinking US dollar in recent weeks has raised what is suddenly a top concern from Washington to Berlin and Beijing: Is America's currency undergoing a benign adjustment or a precipitous plunge? So far, the dollar's slide to nine-year lows doesn't reflect panic. But some analysts say a run on the dollar is possible. And even an orderly drop could affect everything from mortgages to prices at Wal-Mart.
The good news for Americans: It's getting easier for manufacturers to sell products overseas, and more likely that tourists from Germany will flock to US National Parks.
But the downside could be significant. America, the world's leading importer of goods, is now buying them at higher prices. And if the dollar's dive makes foreign investors wary, US interest rates may have to rise to attract buyers of federal debt.
More broadly, it's a shock to the global economy. Sunday in Germany, officials from the Group of 20 industrial and major developing countries called for the United States to cut its federal deficit, which is seen as a key factor in the dollar's fall.
"There's a lot of speculation," says Michael Schubert, an economist at Commerzbank in Frankfurt. He sees some signs of a "herd instinct" developing.
The dollar is now down 50 percent against the euro since October 2000, and hit a its lowest level since 1995 against a basket of foreign currencies last week.
While the shift isn't entirely new, it has accelerated since President Bush's reelection. Some observers say the timing reflects concern that Mr. Bush - with his emphasis on tax cuts - won't be able to rein in record budget deficits.
"The general perception was that under the Bush administration there would be less concentration on tackling the two deficits," says Richard Reid, European economist for Citigroup, the world's largest financial institution.
He was referring to the $412 billion budget deficit and the approximately $600 billion trade deficit the US ran in 2004. A trade deficit must be financed by other nations willing to hold US currency. And foreign investors have also been buyers of federal debt in recent years, helping to keep US interest rates low. But the trend in these deficits now looks unsustainable to many. If those investors sour, even somewhat, on holding US debt, the Treasury may need to offer higher interest on its bonds. The ripple effects, in turn, could dampen US economic growth.
China, another key engine of the world economy, also faces new pressures.
Chinese citizens were lining up outside the Bank of China in downtown Shanghai last week to exchange US dollars for their own currency, the yuan, according to The Wall Street Journal. They fear an official revaluation of the yuan, which if it happens would cut into the value of their dollar savings. Sunday's statement from the G-20 finance ministers called for more flexible exchange rates in Asia.
Europeans, meanwhile, worry that the dollar's fall will harm their weak economic upturn by making their exports more expensive in the US or in other economies tied to the dollar.
Federal Reserve Chairman Alan Greenspan warned Friday in Germany that foreign investors would eventually resist sending more money to the US. This could lead to a further decline in the dollar, and possibly higher interest rates in the US. "We cannot become complacent," he said.
How far could the dollar fall? Some see another 20 percent as possible - a change they say could begin to reduce the huge trade deficit.
The US continues to attract large amounts of foreign capital. In September, foreigners purchased $63.4 billion of US securities. But the dollar's recent fall suggests that the current flow is at least a little inadequate.
Up to now, the White House has let the Treasury deal with the dipping dollar. In comments to the press in London, Treasury Secretary John Snow threw cold water on any move to join the Europeans in managing the dollar's fall.
"The history of efforts to impose nonmarket valuations on currencies is at best unrewarding and checkered," he said.
That view could change if an actual run on the dollar builds up, requiring higher interest rates in the US to attract foreign money.
Decades ago, such an attitude was labeled "benign neglect." If the dollar continues to fall, though, the president may have to tackle the issue in coming months.
If investors in bond markets see rising interest rates ahead to stem a dollar decline, prices of bonds could plunge.
But to Thea Lea, an economist with the AFL-CIO, the dollar is "egregiously overvalued," thereby hurting exports and American workers.
Lawrence Kudlow, a Wall Street economist, says the real problem with the dollar is that "Old Europe has the monetary story wrong." The European Central Bank isn't creating enough new euros to stimulate the economy.
Much of Wall Street seems to expect the dollar to fall gradually - a "Goldilocks" devaluation, says Kathleen Bostjancic of Merrill Lynch. The euro could rise from about $1.30 now to $1.37 by mid-2005, Merrill Lynch traders predict. At a certain point, the European Central Bank could intervene to support the dollar, warns Mr. Schubert of Commerzbank. But it hasn't yet.
The Canajun dollar hit a twelve year high yesterday. It's gaining strength against the U.S. dollar (which is helping by dropping at the same time) and against the Euro.
As they used to say on Laugh-In, "Verrrrry interesting."
LONDON The falling dollar plumbed new depths against the euro on Friday, after a weeklong erosion of value prompted by concern that the dollar's status as the premier international reserve currency is growing more precarious..
The central bank of Russia said Friday that it would stop trying to peg the ruble solely against the dollar, shifting instead to a target based on a basket of global currencies. That could result in a decline in dollar purchases by the central bank, whose currency reserves are dominated by dollar assets..
The biggest questions hang over Asian central banks, which have bought hundreds of billions of dollars' worth of U.S. Treasury securities and other dollar-denominated assets in recent years to slow the decline of the dollar, in order to safeguard their countries' exports to the United States..
Comments by a Chinese central banker Friday, suggesting that the bank might slow its dollar purchases, briefly sent the U.S. currency into a volatile spin before they were retracted..
Analysts say any move to shift those banks' assets out of dollars could result in a sharp long-term fall in the dollar, given that the United States requires a steady inflow of close to $2 billion a day in international funds to finance its current-account deficit, a broad measure of trade in goods and services..
"The present situation could be maintained for a while yet, but overseas investors are unlikely to continue accumulating dollar assets at the current rate indefinitely," said Charles Bean, chief economist at the Bank of England, in a speech late Thursday. His comments appeared to echo a warning from Alan Greenspan, chairman of the U.S. Federal Reserve, last week..
By adding more euros and other currencies into the mix, central banks could protect themselves against a loss of value in their holdings should the dollar continue to slide, as well as, in some cases, more accurately reflecting the trade relationships of their economies. A number of comments from Asian central bankers in recent days suggest that these banks are at least growing more reluctant to add to their vast quantities of dollar reserves..
On Friday, Yu Yongding, a Chinese central bank official, appeared to confirm market fears of a reappraisal of the bank's dollar holdings. The dollar bounced back, however, after a clarification from Yu, published on a Web site. Analysts said it remained unclear whether any policy changes were immediately in store at the Chinese central bank..
"Treat the story with caution, as it appears a tad dramatic," analysts at ABN AMRO wrote in a note to investors..
Indeed, the report, from China Business News, appeared to reflect confusion over the nature of China's dollar-denominated holdings. It quoted Yu as saying China had cut its U.S. Treasury holdings to $180 billion. But U.S. government data had recently shown Chinese holdings of only $174 billion in Treasury bonds..
If bonds issued by U.S. government agencies and other assets are included, however, China's dollar reserves probably are far higher. Analysts at Barclays Capital said the central bank has total international reserves of more than $500 billion, about 70 percent of which probably has been invested in dollars..
A number of comments from other Asian central bankers - often quickly denied when reported by news agencies - have fueled speculation that their employers might consider shuffling their portfolios..
On Tuesday, a Russian central bank official, Alexei Ulyukayev, said the institution was considering altering the mix of its reserve holdings, possibly adding more euro-denominated assets, as the dollar weakens. And on Friday, Konstantin Korishchenko, deputy chairman, said the bank would henceforth aim to keep the ruble trading within a range determined by a basket of currencies, not just the dollar..
The dollar, which traded as low as ¥102.18 after Yu's remarks, bounced back to ¥102.61 in late trading in New York. The euro, which soared to $1.3329, retreated to $1.3285. Late Thursday, the dollar was at ¥102.575, while the euro was at $1.3240. .
The size of the swings in the dollar on Friday may have been magnified by the fact that currency trading desks were thinly staffed because of the Thanksgiving holiday in the United States, and because Yu's comments came during the nighttime hours in London, the hub of global foreign-exchange trading..
Still, analysts say the overall tone for the dollar remains negative amid growing concern about the gap in the U.S. current account, as well as the shortfall in the federal budget..
Against the euro, "$1.35 now seems a natural target in the current dollar-selling frenzy," the ABN AMRO analysts wrote..
Other analysts say the dollar could fall further next year..
Still, a cautious tone prevailed in the markets as traders sought to prevent overexposing their own positions. Because the dollar has dropped so rapidly, falling nearly 8 percent against the yen since early October, for instance, it could bounce back sharply in the short term as traders take profits..
Also, there is the possibility of intervention by central banks to try to prevent a sudden loss of confidence in the dollar. Most analysts think the U.S. Federal Reserve and the European Central Bank are unlikely to intervene in the near term, though the ECB would grow increasingly worried about the strength of the euro if it climbed over $1.35..
Meanwhile, China has signaled that it will continue to resist calls to revalue the yuan in the near term, and Japanese policy makers want to avoid an overly steep climb in the value of the yen, which could undermine Japan's economic recovery..
As the dollar has fallen in recent weeks, it has pushed up the value of gold and oil. .
On Friday, gold prices briefly surged above $455 per ounce as the dollar fell, the highest since June 1988, before easing back..
Does anybody know what the Tourist Rate is for the Euro v US Dollar today? (Monday 29 Nov 2004).
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