3 January 2001, 15:41  Forex: Euro firms in midday London trade as U.S. looks set for hard landing

LONDON (AFX) - The euro continued to firm against the dollar, benefiting from the gloomy outlook for the U.S. economy amid increasing signs that the U.S. is heading for a hard landing. Adding to the dollar's woes, U.S. equity markets stumbled overnight after a very poor NAPM reading yesterday further dented sentiment. Still to come is the U.S. December labour market report, which is expected to show further decline - setting the dollar up for more falls, dealers said. In contrast, Euro zone unemployment stood at 8.8 pct in November, unchanged from October but down from 9.6 pct a year earlier, indicating that job creation in the area remains relatively robust. With a firm footing above 0.95 usd, the euro looks set for further upside at least in the short term although there are some fears of a correction, Halifax economist Steve Pearson said. For the euro to see sustained and sharp gains, the U.S. must be seen heading for a recession. But while the recent spate of economic data seems to indicate this, there is no certainty of it, he said. "Yes, there is upside potential for the euro in the short term, with 0.9640 achievable in the next few sessions but the kind of momentum that would take the euro to parity may not be there just yet," he added. There are several variables, for one the FOMC may be tempted to cut rates before their scheduled meeting at the end of January. The market is already pricing in a rate cut as soon as Friday, Pearson said, but he doubted whether market expectations will be confirmed. The situation is not as dire as it was at the time of the Asian financial crisis, when the Fed cut rates before their planned meeting, he said. "But there is certainly a case for a 50 basis point rate cut when the Fed does meet on January 31," he said. Divyang Shah, economist at IDEAglobal.com believes any pre-emptive U.S. rate cut will only mean a short pause in the euro's climb against the dollar. The corrections the euro has seen so far have been "very shallow," he added. Despite this he said he does not expect the single currency to reach parity with the dollar before the end of February. Other analysts noted that safe haven flows were in favour of the euro and Swiss franc and, to a lesser extent, sterling. Sterling also moved higher against the dollar, breaking the 1.50 usd mark in convincing fashion after flirting with that level for several days. At the same time, however, the UK unit continued to falter against the euro. Caught in the crosswinds of currency market developments elsewhere, sterling's losses to the euro were being mitigated by its march on the dollar, Pearson at Halifax said. UK economic data for the day had little impact on sterling. The yen continued weaker, plagued about concerns over the direction of its economy. It was rangebound against the dollar. "It remains to be seen how Japanese players will react when they come back from holiday tomorrow," Shah at IDEAglobal.com said.

© 1999-2024 Forex EuroClub
All rights reserved