Dollar falls on stagflation worries
The US dollar hit a one-month low against the euro and Swiss franc on Thursday as the spectre of a slowdown in global growth loomed large over the foreign exchange markets.
Comments from Federal Reserve Chairman Alan Greenspan over the possible long-term effects on the US economy of rising defecits were largely ignored as investors concentrated on the shorter term. The jury was out as to whether the US economy was experiencing a soft patch sparked by recent surging oil prices or on the verge of a more lasting economic downturn.
However, currency movements seemed to reflect an increase in risk sensitivity. In such an environment, “safe haven” currencies like the Swiss franc would be expected to benefit and the euro would be expected to outperform both the dollar and the yen as the eurozone is less exposed to the global growth cycle than export-driven Japan or the US, analysts said.
The Swiss franc duly hit a one-month high of SFr1.1740 against the dollar and the euro followed suit hitting a one-month high of $1.3124 per euro. However, the dollar recovered by mid-afternoon in New York to stand at Sfr1.1788 and $1.3077 against the Swiss franc and euro respectively.
Adding to pressure on the yen on Thursday were fears over the recovery of the Japanese economy. Trade data revealed that exports fell by 1.3 per cent over the first quarter of 2005, depressing real gross domestic product for the third quarter in succession.
The dollar moved higher against the yen in early trade yesterday, hitting a high of Y107.43, up 0.5 per cent on the day, before slipping back to Y107.00 by mid-afternoon in New York.
A surprise dip in UK retail sales sent sterling lower against the dollar and the euro on Thursday as data revealed the lowest annual growth rate since August 2003.
Analysts had been looking for a rise of 0.4 per cent for March, but instead were presented with a monthly fall of 0.1 per cent. Annual retail sales growth slipped from 3.6 per cent to 2.7 per cent.
Given that minutes from the April meeting of the Bank of England’s Monetary Policy Committee reiterated the fact that uncertainty regarding the strength of UK consumer demand was the key impediment to a hike in interest rates, investors speculated that this latest release could mean the UK’s monetary policy cycle had peaked.
Sterling fell 0.5 per cent against the dollar from its overnight close to $1.9086 and against the euro fell 0.4 per cent to 0.6853.
Comments from Federal Reserve Chairman Alan Greenspan over the possible long-term effects on the US economy of rising defecits were largely ignored as investors concentrated on the shorter term. The jury was out as to whether the US economy was experiencing a soft patch sparked by recent surging oil prices or on the verge of a more lasting economic downturn.
However, currency movements seemed to reflect an increase in risk sensitivity. In such an environment, “safe haven” currencies like the Swiss franc would be expected to benefit and the euro would be expected to outperform both the dollar and the yen as the eurozone is less exposed to the global growth cycle than export-driven Japan or the US, analysts said.
The Swiss franc duly hit a one-month high of SFr1.1740 against the dollar and the euro followed suit hitting a one-month high of $1.3124 per euro. However, the dollar recovered by mid-afternoon in New York to stand at Sfr1.1788 and $1.3077 against the Swiss franc and euro respectively.
Adding to pressure on the yen on Thursday were fears over the recovery of the Japanese economy. Trade data revealed that exports fell by 1.3 per cent over the first quarter of 2005, depressing real gross domestic product for the third quarter in succession.
The dollar moved higher against the yen in early trade yesterday, hitting a high of Y107.43, up 0.5 per cent on the day, before slipping back to Y107.00 by mid-afternoon in New York.
A surprise dip in UK retail sales sent sterling lower against the dollar and the euro on Thursday as data revealed the lowest annual growth rate since August 2003.
Analysts had been looking for a rise of 0.4 per cent for March, but instead were presented with a monthly fall of 0.1 per cent. Annual retail sales growth slipped from 3.6 per cent to 2.7 per cent.
Given that minutes from the April meeting of the Bank of England’s Monetary Policy Committee reiterated the fact that uncertainty regarding the strength of UK consumer demand was the key impediment to a hike in interest rates, investors speculated that this latest release could mean the UK’s monetary policy cycle had peaked.
Sterling fell 0.5 per cent against the dollar from its overnight close to $1.9086 and against the euro fell 0.4 per cent to 0.6853.
posted by Drs Search @ 9:08 AM
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