The dollar remained firm against the euro in midday trade as disagreements at the latest euro group meeting of finance ministers dominated thinking, dealers said. Comments from Wim Duisenberg, the president of the European Central Bank, failed to alter sentiment against the euro, though all eyes are now slowly turning to the opening of US markets.
Duisenberg effectively ruled out an imminent rate cut when he reiterated his view that the bank's key interest rates are still "appropriate", even though stock market falls could have an adverse impact on the economic recovery. He went on to say the ECB's monetary policy is currently "accommodative", and the historically low level of real and nominal interest rates are no obstacle to a resumption of economic growth.
Market participants had hoped that Duisenberg may have shifted his view a little bit, to promote the arguments for a rate cut further down the line. Duisenberg's comments came on the back of further squabbling at the euro group meeting of finance ministers in Luxembourg. France held out against a Commission proposal to reduce budget deficits year-by-year.
In addition, BNP Paribas global head of foreign exchange research Hans Redeker said the ongoing German tax discussion will not help the euro either. "The government is considering re-introducing the wealth tax and the taxation for realised profits of corporate cross holdings," he said.
However, there was some positive data out of the euro zone this morning which helped stem the losses, most notably German unemployment. Meanwhile, dollar/yen consolidated above the 124 level following earlier gains on the back of disappointing Japanese machinery orders data for August. This helped offset the boon to sentiment provided by the level of bids for the latest twenty-year Japanese bond auction, where the bid/cover ratio was 2.08 against 1.66 in July.
"The Japanese economy shows little sign of recovery," said Neil Mackinnon, chief economist at ECU Group. "The latest data on machinery orders, a key barometer of investment spending, showed a worse-than-expected drop of 13.6% in August." Mackinnon noted that the Bank of Japan has a chance to loosen monetary policy further this Thursday and Friday, but otherwise remains bearish on the yen.//www.ananova.com