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Dollar value climbs against euro { October 2005 } Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=a8vhXSAYiUIU&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=a8vhXSAYiUIU&refer=home
Dollar Climbs to 18-Month High Against Euro on Rate Prospects
Nov. 4 (Bloomberg) -- The dollar rose to an 18-month high against the euro on speculation slower-than-expected U.S. job growth last month won't deter the Federal Reserve from further interest-rate increases.
``I don't think people are prepared to put money on the dollar falling now,'' said Adrian Foster, chief currencies strategist at Dresdner Kleinwort Wasserstein in London. ``The underlying trend is one of higher rates driving the dollar, with the market surprised by how consistently the Fed has raised rates throughout the year.''
The U.S. currency also climbed above 118 yen for the first time since August 2003. Traders kept bets the Fed will lift rates at least two more times from 4 percent even after U.S. employers added 56,000 jobs in October, less than half the median forecast of economists surveyed by Bloomberg News.
The dollar advanced to $1.1811 per euro at 5 p.m. in New York, from $1.1945 yesterday, surpassing its 2005 high of $1.1868 reached in July, according to electronic currency-dealing system EBS. It earlier touched $1.1802, the highest since May 2004. The U.S. currency rose to 118.34 yen, from 117.21 yesterday, after reaching 118.35, the strongest in 26 months.
The dollar initially retreated after the jobs report before investors used the opportunity to buy the U.S. currency on expectations it will extend this year's 14.7 percent advance versus the euro and 15.3 percent climb against the yen.
``The payrolls report provided an opportunity to buy the dollar,'' said Michael Derks, chief global markets strategist at Arch Financial Products LLP, a London-based hedge fund. ``The Fed will remain on the tightening course, whereas while the European Central Bank might tighten in the coming months, it's not a fait accompli.''
12 Straight
The Fed this week increased its benchmark rate for the 12th straight time since June 2004 and reiterated its plan to keep raising borrowing costs at a measured pace. The ECB has left its target rate at 2 percent since June 2003, and the Bank of Japan has left rates near zero since 2001.
Gains in the dollar accelerated after it strengthened beyond $1.1870 per euro and $1.1860, levels where traders had placed pre-set orders to buy the U.S. currency, said Sven Friebe, a currency strategist at Credit Suisse Group in Zurich. Traders place such orders to limit losses in case bets go the wrong way.
``We're simply seeing the trend re-establish itself again as higher rates are going to keep making the dollar attractive,'' said Adrian Schmidt, head of currency strategy at the Royal Bank of Scotland Group Plc in London. ``In the absence of much news, the market's just taking the dollar higher.''
`Looking' for 5 Percent
The U.S. employment gains in October followed a drop of 8,000 jobs a month earlier. That loss was revised from a previously reported decline of 35,000 jobs, the Labor Department said in Washington. Economists expected 120,000 new jobs in today's report, based on the median of 70 forecasts.
``The market remains optimistic on the U.S. economy, and is increasingly looking for the Fed to go to 5 percent, which is helping to support the dollar,'' said Brian Rose, a currency strategist at Bank of Tokyo-Mitsubishi in New York.
This week, the dollar gained 2.2 percent versus the euro, the most since August, and 2.3 percent against the yen, the biggest advance since July.
The yen's drop versus the dollar began in Asian trading after Japanese officials indicated they aren't concerned about the currency's decline and probably won't try to stem its slide any time soon, said Niels Christensen, a currency strategist at Societe Generale SA in Paris.
`Orderly' Fall
``Officials aren't too concerned about the fall in the yen as long as it is orderly, because it only helps to end deflation and boost exports,'' he said. ``It's difficult to see what could stop the current trend of yen weakness.''
Finance Minister Sadakazu Tanigaki told a press conference in Tokyo today the yen is ``overall moving in line with the fundamentals of economies.''
The dollar yesterday rose the most in four months against the euro after Fed Chairman Alan Greenspan said U.S. growth remains ``firm''' two days after the bank raised its benchmark interest rate.
The February federal funds futures contract, an indication of what traders expect the central bank's target rate to average that month, was 4.48 percent today, up from 3.81 percent at the beginning of September.
The U.S. currency was also bolstered yesterday by an industry report showing service companies last month expanded more than economists expected. Demand for the euro waned after ECB President Jean-Claude Trichet damped speculation the bank is poised to raise interest rates as soon as next month.
Economy 'Firm'
``The economic fundamentals remain firm, and the U.S. economy appears to retain important forward momentum,'' Greenspan said yesterday in the text of remarks to the Joint Economic Committee of Congress. ``The longer-term prospects of the U.S. economy remain favorable.''
The Institute for Supply Management said its measure of retail trade, financial services and other non-manufacturing businesses rose to 60 from 53.3 in September, which was the lowest since April 2003. Analysts expected an advance to 57.0, based on the median estimate in a Bloomberg News survey.
The 12-nation European currency's decline yesterday began after Trichet told a press conference in Frankfurt that the bank's benchmark rate of 2 percent is ``still appropriate.'' Deutsche Bank and UBS AG economists said in the past week they expected an increase, the first in five years, before year-end.
``Trichet's comments were really disappointing, especially when several banks had raised forecasts for ECB rates,'' said Nobuaki Tani, a senior currency dealer in Tokyo at Resona Bank Ltd. ``That was a real contrast to Greenspan's hawkish comments and the disappointment led to euro selling.''
Trichet spoke after policy makers kept their benchmark rate unchanged, a decision predicted by all 42 economists surveyed by Bloomberg News. Higher European rates would erode the yield advantage on dollar-denominated assets that's boosted the U.S. currency for three consecutive quarters.
Last Updated: November 4, 2005 17:04 EST
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