January 22, 2004
Euro continues its climb.
The latest
report from the Financial Times says that the Euro continued its rise against the dollar. Curiously, I think that this is the first time the headline reads that the "Euro is climbing" rather than the "Dollar is falling." Which is an interesting switch, and which says a great deal about the psychological change in global perceptions.
The euro continued its upward march against the dollar on Thursday after recent comments from European officials eased the market's concerns about the possitbility of direct intervention from the European Central Bank.
Following last week's sharp correction, which took the dollar to a one-month high against the euro amid growing concerns that the ECB might intervene, the language used by European finance ministers and central bank members was more defensive this week.
The monthly ECB bulletin, published on Thursday morning, the bank again expressed concern about about "excessive" exchange rate moves, but the central bank said it would "continue to monitor carefully all developments" in the market.
The absence of any mentioning of direct action left traders with the view that the ECB was not about to intervene in the market.
Meanwhile, in Davos, Jean-Philippe Cotis, the chief economist of the OECD, said a further rise in the euro could force the ECB to cut interest rates. The comments took the euro off its intraday highs, but it remained firmly above Wednesday's levels.
After rising to $1.2752 in European morning trade the single currency stood at $1.2723 in early afternoon, up from $1.262 in New York on Wednesday. The euro has risen four cents since Monday.
The perception seems to be that the Euro will continue to rise, and the dollar fall, unless the large national banks (of Europe, China and Japan) intervene. But they seem to have reached their limits. They will attempt to manage the change, so that it won't be too sudden, but not to fight it. Perhaps President Bush's State of the Union speech, in which he indicated no real attempt to reel in runaway American spending, made it clear that there's not much they can do about it.
But meanwhile, the US stock markets continue to go and go. The Dow seems to be about to hit 11,000 again. But even this doesn't help the dollar. Very strange. I wonder if my prediction that it will hit $1.30/euro by the end of January will come true. Looks like it.
