Euro Falls as Juncker Says Weak Dollar May Harm Global Economy
Euro Falls as Juncker Says Weak Dollar May Harm Global Economy
by takeshitsai on Wed Apr 23, 2008 9:40 pm
April 23 (Bloomberg) -- The euro fell against the dollar for the first time in three days as Luxembourg's Finance Minister Jean-Claude Juncker signaled concern that the pace of the U.S. currency's decline will hurt economic growth.
The 15-nation euro retreated from a record after Juncker told reporters today he didn't like ``the way things are developing'' in foreign-exchange markets. The Australian dollar rose to a 24-year high against the dollar after a government report showed inflation accelerated above 4 percent for the first time in seven years.
``European policy makers are trying to calibrate their policy and their words to ease the euro down,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut. ``It's really a dangerous level to sell the dollar.''
The euro fell 0.4 percent to $1.5934 at 8:39 a.m. in New York, from $1.5991 yesterday, when it climbed to $1.6019, the highest since the currency's 1999 debut. The euro decreased 0.3 percent to 164.26 yen, from 164.76. The dollar was little changed at 103.05 yen, compared with 103.02.
Juncker, who heads a group of counterparts from the euro area, said in Luxembourg that he thinks ``financial markets should pay higher attention to developments to come and should be concentrating less on short-term information.''
France's European Union Affairs Minister Jean-Pierre Jouyet said today in an interview on LCI television that the euro's advance is a concern and urged greater coordination with the U.S., Japan and China to stem its advance.
Australian Dollar
Australia's dollar rose as much as 1 percent to 95.41 U.S. cents, the highest since 1984, and climbed 0.7 percent to 98.04 yen as consumer prices increased 4.2 percent in the first quarter from a year earlier, breaching 4 percent for the first time in seven years.
The Dollar Index traded on ICE futures in New York, which tracks the U.S. currency against those of six trading partners, rose to 71.494, from 71.33 yesterday. It dropped to a record of 70.698 on March 17.
The 15-nation European currency earlier strengthened against the dollar after an industry report showed growth in Europe's service industries unexpectedly accelerated in April, encouraging the European Central Bank to hold the main refinancing rate at six-year high of 4 percent.
Royal Bank of Scotland Group Plc said a preliminary estimate of its services index rose to 51.8 from 51.6 in March. Economists expected a decline to 51.4, according to the median forecast of 38 economists surveyed by Bloomberg News survey. A reading above 50 indicates expansion.
Record Euro
The euro rose yesterday above $1.60 for the first time as ECB governing council member Christian Noyer said policy makers will ``do what it takes'' to restrain consumer prices. Noyer later told the Wall Street Journal that interest rate ``movements can go both ways.'' He said earlier statements had been over-interpreted, according to the newspaper.
Two-year German government bonds yield 1.65 percentage points more than similar-maturity Treasuries, compared with 1.62 percentage points before Noyer's comments. The premium reached 1.71 percentage points yesterday, the widest since April 9.
Policy makers are wary inflation will quicken as oil has surged 22 percent in 2008 to a record $119.90 a barrel. The euro-dollar had a correlation of 0.96 with oil over the past year, according to data compiled by Bloomberg. A reading of 1 would mean the two moved in lockstep. The U.S. is the world's biggest oil importer.
`Feedback Loop'
``There is a feedback loop'' between oil and the euro, Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, wrote in a research note today. Higher oil prices ``raise expectations of an ECB rate rise, and this leads to a stronger euro and a weaker dollar on widening rate gaps. This further leads to higher oil.''
The euro has risen 2.2 percent in April and 9.4 percent this year against the dollar on speculation inflation will discourage the ECB from lowering its 4 percent main refinancing rate. Inflation accelerated to a 16-year high of 3.6 percent in March, a European Union report showed last week.
The implied yield of the three-month Euribor future for December was 4.59 percent today, rising 0.58 percentage point this month as traders priced in the likelihood of a rate increase. The ECB has held interest rates steady since June.
The U.S. central bank has lowered the fed funds target by 3 percentage points since September to 2.25 percent. Futures on the Chicago Board of Trade show an 82 percent chance it will cut its benchmark a quarter-percentage point on April 30. The balance of bets is for no reduction.
The 15-nation euro retreated from a record after Juncker told reporters today he didn't like ``the way things are developing'' in foreign-exchange markets. The Australian dollar rose to a 24-year high against the dollar after a government report showed inflation accelerated above 4 percent for the first time in seven years.
``European policy makers are trying to calibrate their policy and their words to ease the euro down,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut. ``It's really a dangerous level to sell the dollar.''
The euro fell 0.4 percent to $1.5934 at 8:39 a.m. in New York, from $1.5991 yesterday, when it climbed to $1.6019, the highest since the currency's 1999 debut. The euro decreased 0.3 percent to 164.26 yen, from 164.76. The dollar was little changed at 103.05 yen, compared with 103.02.
Juncker, who heads a group of counterparts from the euro area, said in Luxembourg that he thinks ``financial markets should pay higher attention to developments to come and should be concentrating less on short-term information.''
France's European Union Affairs Minister Jean-Pierre Jouyet said today in an interview on LCI television that the euro's advance is a concern and urged greater coordination with the U.S., Japan and China to stem its advance.
Australian Dollar
Australia's dollar rose as much as 1 percent to 95.41 U.S. cents, the highest since 1984, and climbed 0.7 percent to 98.04 yen as consumer prices increased 4.2 percent in the first quarter from a year earlier, breaching 4 percent for the first time in seven years.
The Dollar Index traded on ICE futures in New York, which tracks the U.S. currency against those of six trading partners, rose to 71.494, from 71.33 yesterday. It dropped to a record of 70.698 on March 17.
The 15-nation European currency earlier strengthened against the dollar after an industry report showed growth in Europe's service industries unexpectedly accelerated in April, encouraging the European Central Bank to hold the main refinancing rate at six-year high of 4 percent.
Royal Bank of Scotland Group Plc said a preliminary estimate of its services index rose to 51.8 from 51.6 in March. Economists expected a decline to 51.4, according to the median forecast of 38 economists surveyed by Bloomberg News survey. A reading above 50 indicates expansion.
Record Euro
The euro rose yesterday above $1.60 for the first time as ECB governing council member Christian Noyer said policy makers will ``do what it takes'' to restrain consumer prices. Noyer later told the Wall Street Journal that interest rate ``movements can go both ways.'' He said earlier statements had been over-interpreted, according to the newspaper.
Two-year German government bonds yield 1.65 percentage points more than similar-maturity Treasuries, compared with 1.62 percentage points before Noyer's comments. The premium reached 1.71 percentage points yesterday, the widest since April 9.
Policy makers are wary inflation will quicken as oil has surged 22 percent in 2008 to a record $119.90 a barrel. The euro-dollar had a correlation of 0.96 with oil over the past year, according to data compiled by Bloomberg. A reading of 1 would mean the two moved in lockstep. The U.S. is the world's biggest oil importer.
`Feedback Loop'
``There is a feedback loop'' between oil and the euro, Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, wrote in a research note today. Higher oil prices ``raise expectations of an ECB rate rise, and this leads to a stronger euro and a weaker dollar on widening rate gaps. This further leads to higher oil.''
The euro has risen 2.2 percent in April and 9.4 percent this year against the dollar on speculation inflation will discourage the ECB from lowering its 4 percent main refinancing rate. Inflation accelerated to a 16-year high of 3.6 percent in March, a European Union report showed last week.
The implied yield of the three-month Euribor future for December was 4.59 percent today, rising 0.58 percentage point this month as traders priced in the likelihood of a rate increase. The ECB has held interest rates steady since June.
The U.S. central bank has lowered the fed funds target by 3 percentage points since September to 2.25 percent. Futures on the Chicago Board of Trade show an 82 percent chance it will cut its benchmark a quarter-percentage point on April 30. The balance of bets is for no reduction.
