Dollar Soars, Investors Stay True to U.S.
NEW YORK – Global investors, still enamored of U.S. assets, lifted the dollar to fresh 2001 highs against the euro, Swiss franc and sterling and 2-1/2 week highs against the yen Monday.
With data showing Japan flirting with recession and sentiment still bearish about Europe after a raft of weak data recently, dealers said the dollar faced little opposition.
"The dollar is still the most attractive place for investors to be -- it's still the safest place to keep your money," said John Hazelton, currency trader at PNC Bank in Pittsburgh.
The British pound was battered afresh, falling to 15-year lows for the fourth session in a row, on speculation that a landslide election win by Britain's Labour Party will speed up sterling's entry into the European single currency. Sterling is widely expected to join the euro at weaker levels.
The pound closed at $1.3718 , within sight of its lows at $1.3714.
Europe's single currency tumbled to fresh six-month lows under 84.15 cents in early U.S. trading, but edged back to close at 84.32 cents , down more than 0.75 percent from the previous U.S. close. Dealers said the currency would remain under pressure, with some even expecting a test of the single currency's record lows of 82.25 cents in the next week.
The dollar also charged up to 6-1/2 month highs against the Swiss franc near 1.8060 francs, before closing at 1.8038 francs .
"The euro pressure was related to the perception that European growth is slowing," said Mike Malpede, senior foreign exchange analyst at Refco Group Ltd.
While U.S. officials have been optimistic about the U.S. economy -- on Monday Dallas Federal Reserve President Robert McTeer said the slumping economy has probably hit bottom -- there seems to be no such optimism for the European economies.
The Bank for International Settlements said in its annual report on Monday that the dollar's continued strength against the euro reflected expectations that over the long run, the U.S. economy will keep growing more quickly than Europe.
Separately, the European Banking Federation cut its outlook for euro zone growth in 2001 and 2002, to 2.4 percent and 2.7 percent, respectively.
Some dealers also suggested that Friday's rejection by Irish voters of the Nice Treaty on European Union enlargement may have contributed to the euro's weak tone.
YEN BRUISED BY GROWTH DATA
Weaker-than-expected growth in Japanese domestic production figures sent the Japanese currency tumbling overnight, and dealers said more yen weakness was likely.
Data showing the Japanese economy contracted 0.2 percent in the first three months of this year -- a stark contrast to expectations of a 0.2 percent rise -- raised fears the economy is slipping into its fourth recession in a decade and pushed Japanese stocks down 1.5 percent.
"This means the Japanese policy reaction is going to have to be swifter and more pronounced if they're going to turn things around," said Eric Nickerson, currency strategist at Bank of America. "Monetary policy is going to have to be more aggressive in terms of easing, so the supply of yen will be more plentiful and therefore the yen will be weaker."
Taro Aso, a senior official in the ruling Liberal Democratic Party, compounded the yen's woes, admitting the economy was unlikely to meet the government's growth target for the current fiscal year and saying Japan should take all available steps to reflate its economy, including further monetary easing.
The dollar ventured as high as 122.05 yen, reclaiming more than three yen from three-month highs scaled on June 1 and clung tenaciously to its gains, closing at 121.91 yen .
The yen also tumbled against the euro, dipping as low as 103.80 yen -- almost four yen below the five-month peaks against the single currency scaled early this month. But the euro, saddled with its own problems, gave back its gains and slid down to 102.77 yen at the New York close.
In contrast to its gains against most other key currencies, the dollar extended four-month lows it set last week against the Canadian dollar, trading down to C$1.5150.