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By Daniel Bases
NEW YORK - The dollar lunged forward more than 1 percent against the euro, yen and Swiss Franc on Thursday, breaking through key chart levels in thin trading with help from stronger U.S. stocks.
The euro fell sharply against the dollar after falling below key support levels seen in the 97.25/50 cents range, which it has tested for the better part of two weeks.
"The market has been positioned to buy the euro and sell the dollar, despite the recent equity rally and all the buying of euros on its dips has left it vulnerable to these down moves," said Joe Francomano, vice president of foreign exchange at Erste Bank in New York.
"But I think this was a pure and simple momentum day. I do not believe the dollar has turned the corner or broken the euro up trend," Francomano said, referring to the euro's 16 percent rise against the dollar between March and mid-July.
In late New York trade, the euro fell to 96.85 cents Currency strategist Paul Podolsky at Fleet Global Markets in Boston said recent strength in U.S. stocks had been undermining the euro, but attributed the latest breakdown of the European currency to technical factors.
"The breaking of the 97.50 cents support level is what is leading to the euro's decline today as stop-loss orders kick in," Podolsky said. The dollar rose to 119.84 yen Sterling lost 0.71 percent to the dollar, trading at $1.5210 Against the Swiss franc, the dollar put on 1.48 percent to 1.5193 francs "It seems that buoyant stocks are giving the dollar a little support at a time when there is not a great deal of anything else," said Andrew Delano, foreign exchange analyst at IDEAglobal.
On Wall Street, the Dow Jones Industrial average rose 1.08 percent; the Nasdaq composite(IXIC) rose 0.97 percent; theS&P 500(SPX) rose 1.41 percent.
Refco senior currency strategist, Mike Malpede said the outlook for the U.S. economy and the stock market remained too uncertain for him to become "comfortably bullish" on the dollar.
"But I also think that it is fairly clear that the economies are synchronized, so that, if the U.S. slows down, it will only be worse for Japan and the euro zone," he said.
IMF SEEN CUTTING U.S., EURO ZONE GROWTH RATES
The International Monetary Fund is expected to cut its economic growth forecasts for the United States and the euro zone, while raising its projections for Japan, Germany's Handelsblatt newspaper reported in its Friday edition.
The paper said the figures were based on a copy of the IMF's world Economic Outlook, which is due to be released in late September.
The paper reports the IMF will cut its growth outlook for the U.S. economy for 2002 by 0.1 percentage point to 2.2 percent and by 0.8 percentage point to 2.6 percent for 2003.
It also lowered the outlook for the euro zone economy for this year to 1.1 percent and 2.5 percent for next year, but raised the outlook for Japan this year by 0.5 percentage point to a 0.5 percent contraction.
The world economy's growth outlook remained unchanged at 2.8 percent this year, but the 2003 outlook was cut by 0.3 percentage point to 3.7 percent.
"The IMF cuts added momentum to the European currency weakness, but then again it is August and you have thin volumes and the U.S. stock market continues to rise," said Francomano.
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