The Wall Street Journal-20080117-Dollar Gains on Euro- Yen as Risk Fears Wane
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Dollar Gains on Euro, Yen as Risk Fears Wane
NEW YORK -- The dollar strengthened considerably against the euro and yen yesterday as investors reduced risk positions amid a decline in global oil prices and signs that euro-zone economic growth is slowing.
The euro fell sharply to $1.4657 from its intraday high of $1.4860, when Nymex crude oil slumped below $90 a barrel after U.S. inventories unexpectedly rose. It was at $1.4828 Tuesday.
Also, Bloomberg News reported that European Central Bank council member Yves Mersch said the ECB may revise down its 2% growth forecast for this year, citing an increase in downside risks to economic activity.
"Everyone saw [the Mersch comments] hit the wires, and we were a little bit surprised by it," said Robert Sinche, head of global currency strategy at Bank of America in New York. "And with oil prices coming down . . . the ECB could be a little bit more complacent about inflation."
That means ECB talk of an impending rate rise, which boosted the euro last week, might be premature.
Mr. Mersh's remarks "reflect a possible shift of bias away from inflation to growth, which will likely accelerate the euro's losses," noted Ashraf Laidi, chief foreign exchange analyst at CMC Markets US in New York. "The statements may also expose sign of dissent in the ECB, which is witnessing an increasing disparity in inflation and growth rates across the 15-nation euro zone."
U.S. equities bounced on the news, which also benefitted the dollar against the yen. The dollar reached an intraday high of 107.95 yen later in the day, up from a low of 105.92 overnight, its worst performance since May 2005.
The dollar was at 107.53 yen, up from 106.83 Tuesday. The euro was at 157.60, down from 158.40. The United Kingdom pound was at $1.9628, down from $1.9650, and the dollar was quoted at 1.0996 Swiss francs, up from 1.0917.
Concerns that U.S. economic problems may spread globally are leading U.S. investors out of their overseas equity investments back into the dollar, said Chris Turner, head of foreign exchange strategy at ING in London.
In addition, lower oil prices create more demand for dollars, he said.
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Dan Molinski contributed to this report.
