The US dollar has continued to recover from last week's lows, pushing the euro below $1.18 yesterday and giving a boost to equity markets.
Markets have focused over the past couple of trading sessions on signs of US recovery, expected to be be confirmed be a variety of data this week. This has given support to the currency, in contrast to last week when a concentration on the US current account deficit and trade tensions led to dollar selling.
The euro fell as low as $1.1761 yesterday and was holding below $1.18 later, as investors looked ahead to revised figures for US growth and key consumer and production indicators, all due before Thursday's Thanksgiving holiday. Dollar purchases were also encouraged by comments from US commerce under-secretary, Mr Grant Aldonas, who told reporters in Brussels that the Bush administration was not leaning toward protectionism. The announcement of tariffs on Chinese imports was one factor that hit the currency last week.
However while Mr Aldonas struck a conciliatory tone and stressed the US administration's readiness to comply with a WTO ruling, he did not indicate whether this would translate into a decision to lift steel tariffs in time to avoid sanctions that the EU threatens to impose on US exports worth $2.2 billion (€1.9 billion) by December 6.
The dollar traded at 109.30 yen, up 0.5 per cent on the day, after suspected yen-selling intervention by Japanese authorities last week helped the greenback bounce back from a three-year low around 107.50 yen.
Yesterday, analysts also said comments from European Central Bank president Mr Jean-Claude Trichet boosted the dollar. Mr Trichet said that the G7 statement in Dubai in September was aimed at encouraging some Asian nations to allow their currencies to rise in value against the dollar.
Mr Trichet's statement encouraged market players to take profits on the euro and buy back short positions on the dollar, traders said. At the time of the statement, market analysts had taken the view that the Bush administration was happy to see the dollar declining across the board.
The stronger dollar and hopes of economic recovery boosted most markets, with London's FTSE 100 adding 1.5 per cent and the CAC 40 in Paris adding 1.4 per cent. Frankfurt shares were boosted by reports that the government was urging German banks to merge to avoid foreign takeovers. While the finance ministry denied the report, the resulting surge in bank shares added 2.6 per cent to the Dax share index in Frankfurt. Meanwhile in New York last night the Dow Jones closed up 1.24 per cent at 9,748.
On the currency markets, the euro is well off last week's record high of $1.1977, though many analysts believe its trend will remain weak over the coming months. In Dublin, many forecasters see the euro at around $1.20 by year-end, and believe the dollar will fall further in 2004, weighed by the massive US current account balance of payments deficit.
But Bank of Ireland economist Dr Dan McLaughlin has consistently argued that the stronger rate of US economic recovery will support the dollar and he expects it togain against the euro in the months ahead. - (Additional reporting Reuters, Financial Times service)
