- "There is a general feeling in the market that there
is little to stop the dollar's fall... if it breaks through technical support
levels at around $1.28, it could easily accelerate."
-
- Federal Reserve's Insistence On Rock-Bottom Interest
Rates Triggers Currency Rout
-
- Sterling powered to its highest level against the dollar
yesterday since its humiliating ejection from Europe's exchange rate mechanism
11 years ago as the American currency entered the new year facing a renewed
wave of selling.
-
- Weekend comments by a senior Federal Reserve official
signalling that the US central bank was likely to stick to its policy of
rock bottom interest rates triggered the dollar rout.
-
- Traders dumped the greenback after Ben Bernanke, a member
of the Federal Reserve Board, told a weekend meeting of American economists
that the Fed had "the luxury of being patient".
-
- Mr Bernanke's comments sent the dollar to a fresh record
low of $1.2695 against the euro and $1.8065 against the pound - its lowest
level since Black Wednesday in September 1992.
-
- The Federal Reserve cut borrowing costs to a 54-year
low of 1% last June. The American authorities appear to be in no hurry
to follow the example of central banks in Britain and Australia, which
have already begun raising rates in response to improving global growth.
-
- "We have an economy growing quite nicely, but the
Fed is showing no intention of hiking rates," said Hans Guenter Redeker,
the chief foreign exchange strategist at BNP Paribas in London.
-
- The low level of American rates has reduced the appeal
of investing in the dollar at a time when the US needs to attract growing
sums of over seas investment to fund its current account deficit. "If
the Fed does not see a weak dollar as an inflationary threat, it has little
reason to raise interest rates and the trend of dollar weakness will continue,"
said Shahab Jalinoos, a senior currency strategist at ABN Amro.
-
- Analysts said that the greenback's decline was likely
to continue, with the US authorities apparently relaxed about the currency's
fall and worries about the country's ballooning current account deficit
weighing on the market.
-
- "There is a general feeling in the market that there
is little to stop the dollar's fall," said Adam Cole, a senior currency
strategist at CrÈdit Agricole Indosuez.
-
- But the damage the soaring euro is inflicting on exports
is causing growing concern in Europe's capitals.
-
- German officials want finance ministers from the seven
leading economies to discuss the dollar when they meet in Florida in early
February, G7 sources said. Analysts said the key to the meeting would be
the stance of Washington, which has so far kept mum on the weak dollar.
-
- "The dollar's fall has been orderly so far, but
if it breaks through technical support levels at around $1.28, it could
easily accelerate," said Nick Parsons, a currency strategist at Commerzbank.
-
- "If it starts to hit the stock or bond markets,
the US attitude would turn on a dime," he added.
-
- Mr Bernanke said it was a mistake only to look at the
dollar's sharp drop against the euro, adding that the greenback's fall
against a broad basket of currencies had been much smaller. The risk of
a "dollar crisis" was low, he maintained.
-
- While European companies which depend on exports to the
US are suffering from the high euro, they are coping better than expected,
said a spokesman for Germany's association for exporters and foreign trade,
AndrÈ Schwarz.
-
- "The situation is not so dramatic," he said,
noting that demand for European goods remained strong.
-
- Guardian Unlimited © Guardian Newspapers Limited
2004
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- http://www.guardian.co.uk/business/story/0,3604,1116814,00.html
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