January 19, 2004
Euro and Canadian dollar drop, then steady.
The Financial Times
reports that the dollar has risen a bit against the Euro over the past few days, and is apparently holding steady while the markets wait for both a meeting of Eurozone finance ministers, as well as the international February G7 meeting. The Canadian dollar steadied a bit as well.
The euro steadied on Monday against the dollar after hitting a one-month low as investors looked to a meeting of eurozone finance ministers for clues to the scale of European disquiet with the euro's rise.
The single currency was at $1.237 against the dollar at the London close, off a low of $1.2335 - its lowest since before Christmas. Trading conditions were thin on Monday, with US investors on holiday. This left traders focused on Europe, and the eurozone finance ministers' meeting on Monday night. Currencies were expected to be on the agenda and investors were hoping to pick up any remarks that revealed the depth of politicians' concerns about the euro, following a series of comments by European central bankers last week.
"[The] meeting of eurogroup finance ministers may indeed call for an end to euro appreciation, but the market will likely need to wait for the February 6-7 G7 meeting in Florida for a broader response from other G7 nations," said Steven Saywell, senior currencies strategist at Citigroup.
Interest rate pressures helped the Canadian dollar to its lowest against its US counterpart this year. The dollar rose to C$1.3044 before settling back to $1.302. Traders said conditions were particularly thin given the market holiday over the border.
Widespread, but not unanimous, expectations of an interest rate cut by the Bank of Canada at its meeting on Tuesday are partially behind the Canadian currency's recent weakness.
The bank last year reversed two early rate rises with cuts in July and September. Since then, the rise in the currency to new 10-year highs against the US dollar, plus some disappointing growth data, have prompted speculation the BoC could lower borrowing costs on Tuesday.
So the national banks are keeping the dollar up. Whether the reasons are more political than economic is not at all clear. But the underlying problems remain. I still predict further problems with the dollar this year. But we shall see.
Meanwhile the Japanese are continuing to invest billions in maintaining the value of the yen, but last week issued a warning to the US that it's growing deficits represent a serious and growing problem. And the Chinese are getting closer to deal with the problem of the yuan being tied to the dollar, which is causing increasing problems there.
