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Chances Of A Dollar Rebound Slipping Away. By Nicholas Hastings.
LONDON (Dow Jones)--Thought the chances of a dollar rebound were
increasing?
Forget it.
Last weekend's developments in Tokyo appear to have put paid to that.
As Paul Chertkow, head of global currency research at Bank of Tokyo-Mitsubishi UFJ in London, put it: "The view that the dollar is embarking on a stronger path appears
premature."
Before finance ministers and central bankers from the Group of Seven industrialized countries gathered in the Japanese capital, the dollar had been showing new
optimism.
Economic evidence suggested that countries outside the U.S. were starting to succumb to the fallout of the subprime crisis. Hopes were that not only G7 itself might
embark on some coordinated action to prevent the deterioration in the global economy, but that others might follow the monetary and fiscal easing embarked on the U.S.
By early Monday, however, this was clearly not the case.
Although G7 acknowledged the "more challenging and uncertain environment," there was no sign of joint action to address the risks.
In fact, the G7 communique indicated just the contrary.
"The clear bias towards downside risks in growth show that policymakers are finally coming to the view that these major economies will be unable to fully protect
themselves from the recessionary headwinds of the U.S.," warned Hans Redeker, head of global foreign exchange strategy at BNP Paribas in London.
At the same time, the European Central Bank, which appeared to have taken a slightly more dovish stance just before the meeting suggesting that euro-zone rates could be
cut, appeared only too eager to reverse market impressions and reestablish its hawkish credentials.
Both ECB President Jean-Claude Trichet and Bundesbank President Axel Weber stressed that inflation concerns remain and that interest rate cuts aren't on the agenda.
So although the euro came out of the weekend facing a background economy that may continue to degenerate, there is little indication that policy will be adjusted at
this stage - leaving the single currency well supported for now.
For the dollar, meanwhile, the market remains unconvinced that the U.S. economy will be able to avoid a recession.
Aurelio Maccario, co-head of European economics at UniCredit Markets and Investment Banking in Milan, noted that the latest figures on the U.S economy "raised as many
questions as they answered."
He suggested that while the economy might well be contracting in the first quarter of this year, "the weakness may not be widespread enough to indicate a recession."
Nevertheless, general disappointment that more isn't being done to avoid a further U.S. and global economic slowdown has one again reduced market appetite for risk -
leaving the dollar on the slide at least for now.
Callum Henderson, head of foreign exchange strategy at Standard Chartered in Singapore, reckons that despite its post-G7 decline, the dollar remains firmer than it was
a week ago given the volatility in underlying asset markets.
"This week, we would expect it to remain firm, but then gradually lose ground until such time as the economics data confirms that U.S. economic woes are indeed being
felt elsewhere in Europe and Asia," Henderson said.
Daragh Maher, senior foreign exchange strategist at Calyon Credit Agricole in London, is also convinced that the strength the dollar was displaying pre-G7 will slowly
ebb away.
"If the consolidation persists, the downward momentum that might have seen the (euro) exchange rate push below $1.4360 and then $1.4311 may fade, consigning it to a
range-trading environment that would see (the euro) push higher again," Maher said.
Early Tuesday in Europe, the euro was still heading higher, rising to $1.4535 by 0745 GMT from $1.4522 late on Monday in New York, according to EBS. The market is
waiting to see if the latest ZEW business sentiment survey from Germany shows the decline the market expects. The economic conditions index is expected to fall to 50.0
this month from 56.6 in January.
Meanwhile, the dollar is up a little at Y107.01 from Y106.91 with equity markets staying just in positive territory. The Nikkei gained 0.04% earlier in the day after
the Dow Jones Industrial Average rose 0.5% Monday.
With risk aversion not climbing anymore just now, the euro was able to push ahead to Y155.17 from Y155.26.
Forget it.
Last weekend's developments in Tokyo appear to have put paid to that.
As Paul Chertkow, head of global currency research at Bank of Tokyo-Mitsubishi UFJ in London, put it: "The view that the dollar is embarking on a stronger path appears
premature."
Before finance ministers and central bankers from the Group of Seven industrialized countries gathered in the Japanese capital, the dollar had been showing new
optimism.
Economic evidence suggested that countries outside the U.S. were starting to succumb to the fallout of the subprime crisis. Hopes were that not only G7 itself might
embark on some coordinated action to prevent the deterioration in the global economy, but that others might follow the monetary and fiscal easing embarked on the U.S.
By early Monday, however, this was clearly not the case.
Although G7 acknowledged the "more challenging and uncertain environment," there was no sign of joint action to address the risks.
In fact, the G7 communique indicated just the contrary.
"The clear bias towards downside risks in growth show that policymakers are finally coming to the view that these major economies will be unable to fully protect
themselves from the recessionary headwinds of the U.S.," warned Hans Redeker, head of global foreign exchange strategy at BNP Paribas in London.
At the same time, the European Central Bank, which appeared to have taken a slightly more dovish stance just before the meeting suggesting that euro-zone rates could be
cut, appeared only too eager to reverse market impressions and reestablish its hawkish credentials.
Both ECB President Jean-Claude Trichet and Bundesbank President Axel Weber stressed that inflation concerns remain and that interest rate cuts aren't on the agenda.
So although the euro came out of the weekend facing a background economy that may continue to degenerate, there is little indication that policy will be adjusted at
this stage - leaving the single currency well supported for now.
For the dollar, meanwhile, the market remains unconvinced that the U.S. economy will be able to avoid a recession.
Aurelio Maccario, co-head of European economics at UniCredit Markets and Investment Banking in Milan, noted that the latest figures on the U.S economy "raised as many
questions as they answered."
He suggested that while the economy might well be contracting in the first quarter of this year, "the weakness may not be widespread enough to indicate a recession."
Nevertheless, general disappointment that more isn't being done to avoid a further U.S. and global economic slowdown has one again reduced market appetite for risk -
leaving the dollar on the slide at least for now.
Callum Henderson, head of foreign exchange strategy at Standard Chartered in Singapore, reckons that despite its post-G7 decline, the dollar remains firmer than it was
a week ago given the volatility in underlying asset markets.
"This week, we would expect it to remain firm, but then gradually lose ground until such time as the economics data confirms that U.S. economic woes are indeed being
felt elsewhere in Europe and Asia," Henderson said.
Daragh Maher, senior foreign exchange strategist at Calyon Credit Agricole in London, is also convinced that the strength the dollar was displaying pre-G7 will slowly
ebb away.
"If the consolidation persists, the downward momentum that might have seen the (euro) exchange rate push below $1.4360 and then $1.4311 may fade, consigning it to a
range-trading environment that would see (the euro) push higher again," Maher said.
Early Tuesday in Europe, the euro was still heading higher, rising to $1.4535 by 0745 GMT from $1.4522 late on Monday in New York, according to EBS. The market is
waiting to see if the latest ZEW business sentiment survey from Germany shows the decline the market expects. The economic conditions index is expected to fall to 50.0
this month from 56.6 in January.
Meanwhile, the dollar is up a little at Y107.01 from Y106.91 with equity markets staying just in positive territory. The Nikkei gained 0.04% earlier in the day after
the Dow Jones Industrial Average rose 0.5% Monday.
With risk aversion not climbing anymore just now, the euro was able to push ahead to Y155.17 from Y155.26.
12 February | 
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