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Dollar rallies, hits 5-month euro high
By Martin | January 21, 2010
A looming slowdown in Chinese bank lending and uncertainty over the debt problems of some European countries, particularly Greece, pushed the dollar to a 5-month high against the euro Wednesday. The dollar tends to benefit from economic or corporate news that points to instability, just as stocks, commodities and emerging-market currencies trend lower for the same reason. The 16-nation euro slid to $1.4108 in late trading in New York from $1.4292 late Tuesday. It traded as low as $1.4081, its lowest point since last August. As recently as early December, the euro was trading above $1.50. “The people that are really moving this market are momentum traders,” said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York. The euro’s break below a key technical level is driving traders to sell the euro further, she said. It’s a bet that the decline will continue for the near future. The British pound was also lower, at $1.6287 from $1.6361, while the dollar gained to 91.21 Japanese yen from 90.82 yen late Tuesday. Europe is gripped by concerns over debt levels for some of the weaker members in the European Union, particularly Greece and Ireland, fueling speculation that they will face tough fiscal measures, such as spending cutbacks and higher taxes, that would limit growth in coming years. Officials from the European Union have said Greece should be able to deal with its debt crisis and that they are not worried about a default, although bond markets suggest the risk of a default has increased. “There are continued worries over Greece which are definitely not going away any time soon,” said Dan Cook, senior market analyst at IG Markets. Meanwhile, a Chinese banking regulator said Wednesday that the country will slow bank lending in order to stop bubbles from forming in the hot real estate market and in other assets. The economic rebound in China, and its demand for energy and other commodities, has helped bolster the world recovery. In the first nine months of 2009, China’s economy expanded 7.7 percent. A government report in December said full-year growth is forecast at 8.3 percent. China releases fourth-quarter gross domestic product on Thursday. In the U.S., however, the government said that inflation at the wholesale level rose 0.2 percent in December, slower than November’s 1.8 percent rise. That gives the Federal Reserve leeway to keep interest rates near zero, possibly weighing on the dollar despite improvements in the U.S. economy. Lower interest rates can hold down a currency as investors transfer funds to assets with the possibility of higher returns. Also Wednesday, data showed the housing market remains a significant risk to the economy. Construction of new homes and apartments fell 4 percent in December to a seasonally adjusted annual rate of 557,000 from an upwardly revised 580,000 in November, the Commerce Department said. Applications for future projects, however, increased strongly as the industry ramps up for the spring selling season. In other late trading, the dollar rose to 1.0437 Swiss francs from 1.0324 francs late Tuesday, and jumped to 1.0472 Canadian dollars from 1.0313. The Australian and New Zealand dollars were also sharply lower versus the dollar. They, and the Canadian dollars, are known as commodity-backed currencies because their economies are closely tied to the export of commodities such as oil, metals and grains. A slowdown in Chinese lending could constrain demand for commodities needed to run the country’s factories, cars and construction.
Source YellowBrix, Inc.
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