By Carolyn Cohn
LONDON - The dollar put in its worst showing in nearly two months against the euro and tested similar lows against the Swiss franc on Friday as the market continued to question the strength of the U.S. recovery. The dollar has been on the back foot against European currencies following comments from U.S. Federal Reserve Chairman Alan Greenspan earlier this week that the U.S. current account deficit must eventually be restrained. The market needs strong U.S. data later on Friday if its going to swing back in favor of the dollar, analysts said.
"Dollar weakness is the big issue. U.S. data has reached a 'What now?' situation. We've had good data but we need more confirmation," said Peter Wuyts, foreign exchange strategist at KBC in Brussels.
"I don't think we can declare victory for the euro yet," he added. The dollar weakened to $0.8852 per euro, its worst level since January 23, and fell to 1.6524 per Swiss franc, just short of two-month lows set in the previous session. It recovered slightly to $0.8836/38 per euro and 1.6558/64 per Swiss franc by 3:25 a.m. EST, little changed from the U.S. close.
WATCH THE DATA
U.S. producer prices for February, due at 8:30 a.m. EST, are forecast to show a gain of 0.1 percent on the month. Industrial production, due at 9:15 a.m. EST, is expected to show a rise of 0.3 percent in February, while capacity utilization, also at 1415 GMT, is forecast at 74.3 percent, from the previous 74.2 percent. The University of Michigan preliminary consumer sentiment survey for March, due at 1445 GMT, is forecast at 92.9 from the previous 90.7. U.S. stock index futures were indicating a weaker open to Wall Street, after the tech-heavy Nasdaq composite index fell for a fourth successive day on Thursday. German retail sales, meanwhile, were up a buoyant 1.4 percent on the month in January, contrasting with a weak 0.3 percent rise in U.S. February retail sales earlier this week.
SAFE HAVEN FLOWS
The Swiss franc was continuing to draw safe-haven flows on growing unease the United States might broaden its campaign against extremists to include Iraq. Earlier in the week, President Bush did not rule out unilateral action against Iraq as Vice President Dick Cheney toured the Middle East to build support for possible action against Baghdad. "A possible attack shouldn't hurt the dollar in a major way, but certainly the market is sensitive to these kinds of developments," said Shogo Nagaya, foreign exchange manager at Nomura Trust and Banking in Tokyo. U.S. Deputy Treasury Secretary Kenneth Dam, meanwhile, defended the U.S. strong dollar policy late on Thursday, telling a strong dollar was positive for the U.S. economy and there was no change in policy. Doubts have been growing about the U.S. commitment to its longstanding strong dollar policy following Greenspan's comments and the U.S. decision last week to impose new tariffs on steel imports.
Dam said the U.S. current account deficit did not pose a burden on the economy and added the dollar's strength was not a "significant factor" in the decision to aid the steel industry. YEN RUMORS The dollar showed no real reaction against the yen to swirling rumors in the late Tokyo afternoon that some sort of "important" announcement would be made at 2 a.m. EST. Nothing materialized. The talk was vague, taking in the imminent resignation of Bank of Japan Governor Masaru Hayami, a Japan downgrading by rating agencies and the failure of various Japanese banks. The dollar was at 129.12/17 yen, little changed from the U.S. close. The broadly strong euro rose to one-week highs against the yen of 114.33, before easing to 114.09/16.