The Wall Street Journal-20080125-Euro Rises on the Dollar Amid More Risk Appetite
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Euro Rises on the Dollar Amid More Risk Appetite
The euro rallied against the dollar and yen yesterday in New York on a spike in risk appetite after the Federal Reserve's inter-meeting rate cut Tuesday.
The euro climbed to $1.4772, its highest level against the dollar since Jan. 16, as the reality of much lower U.S. interest rates began to sink in. The euro also rose against the yen to a one-week high of 157.89 yen -- a signal among currency analysts that risk appetite is strong, typically a bad sign for the dollar.
"We had been in an environment where the dollar had gotten some support from risk reduction. Since the Fed has come in, obviously that has been negative for the dollar in a rate-differential sense . . . but also from a re-risking perspective, and markets have gone back into trades funded by the dollar," said Jens Nordvig, currency strategist at Goldman Sachs in New York.
The next important technical level for the euro to break is $1.4830, said Andrew Chaveriat, technical foreign-exchange strategist at BNP Paribas in New York. The most recent high for the euro before global stocks were sent into a frenzy Monday was $1.4923.
Yesterday afternoon in New York, the euro was at $1.4772 from $1.4634 Wednesday, while the dollar was at 106.88 yen from 106.60. The euro was at 157.89 yen from 155.99 yen. The British pound was at $1.9773 from $1.9567. The dollar was at 1.0862 Swiss francs from 1.0902 francs Wednesday.
Tuesday, the Fed announced an emergency 0.75 percentage-point cut to its benchmark rate, bringing it down to 3.5%. The lower rates can reduce returns for many dollar-based investments, leading many investors to sell the dollar and thereby boost the euro. Meanwhile, rate cuts increase hope among investors the U.S. will push off a recession. That boosts equities, which helps the dollar against the yen.
The dollar struck an intraday high yesterday afternoon in New York as U.S. equities rallied on expectations of another rate cut by the Fed at its meeting Jan. 29-30, as well as news that Congress agreed on an economic-stimulus package to aid the U.S. economy. The dollar rose to 107.03 yen as the Dow Jones Industrial Average rose more than 100 points.
The euro was also aided yesterday by comments overnight from European Central Bank governing council member Axel Weber, who dispelled market speculation of an interest-rate cut by the ECB.
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Paul Evans in Toronto contributed to this article.
