17 December 2002, 11:50  Dollar Falls vs Euro; Powell Comments Fuel Concern of Iraq War

London, Dec. 17 (Bloomberg) -- The dollar fell against the euro after Secretary of State Colin Powell fueled concern there may be war with Iraq. The dollar weakened to $1.0285 to the euro at 8 a.m. London time, from $1.0216 in London late yesterday. The U.S. currency is at the lowest level against its European counterpart since Jan. 13, 2000. The euro, up 15.7 percent in 2002, is heading for the first year of gains since its January 1999 inception. ``In the very near term, we'd be fairly bearish on the dollar because of Iraq,'' said Kevin Grice, a senior economist for American Express Bank Ltd. The U.S. is skeptical Iraq has provided a full description of its weapons program to the United Nations, Powell said. The U.S. is considering military action against Iraq if it fails to declare its program and give UN inspectors access to sites to check it isn't developing weapons of mass destruction. The dollar is under pressure because drawn-out conflict with Iraq may damp consumer confidence and rein in U.S. growth, analysts said. The dollar is down today against all but two of the 16 other major currencies tracked by Bloomberg.
Still, if a U.S. attack were to quickly oust Iraqi leader Saddam Hussein, the dollar may gain, some analysts said. ``The pessimism on the dollar should diminish,'' boosting the currency to $1 per euro by the end of the first quarter next year, Grice said.
Dollar Slumped
The dollar slumped against the yen in the 10 weeks after Iraq invaded Kuwait on Aug. 2, 1990. It rallied before declining in January 1991 after U.S. air attacks started. The U.S. currency fell to 120.74 yen at 8 a.m. in London, from 121.34 yesterday. The dollar is down for the sixth day in eight against the Japanese currency. ``There are growing expectations the U.S. may attack Iraq, and that is weighing on the dollar,'' said Minori Takeuchi, a Tokyo-based foreign-exchange analyst at J.P. Morgan Chase & Co., the fifth-largest trader in the $1.2 trillion-a-day currency market. The dollar may fall to 120.50 yen today, Takeuchi said. Powell said U.S. skepticism that Iraq will provide a full declaration of its weapons program is ``well-founded.'' Iraqi Deputy Prime Minister Tariq Aziz over the weekend said any U.S. move to rid Iraq of weapons will fuel ``hatred'' against the U.S. The U.S. will make an official comment on Iraq's report after Hans Blix, the chief United Nations arms inspector, briefs the Security Council on the Iraqi declaration on Thursday, Powell said.
BOJ Stands Pat
The yen also rose after the Bank of Japan left interest rates unchanged after a two-day meeting. The central bank resisted calls by Senior Vice Finance Minister Takayoshi Taniguchi, who also holds a seat in parliament, and others to increase the amount of money it's pumping into the banking system. Such a move would have diluted the yen's value, analysts said. Today's rally in the yen may be limited by concern the government will sell its currency to stem its 2 percent gain over the last five days. Finance Minister Masajuro Shiokawa called the currency's gain in the past week ``extraordinary'' and said Japan may consider implementing a ``warning action'' to stem the advance. Shiokawa has previously said the yen at 150 to 160 per dollar would reflect the state of the Japan's economy. A strengthening yen erodes the profits Japanese exporters earn on overseas sales and threatens to stall economic growth. The dollar weakened to $1.5957 to the British pound, from $1.5928. It was at 1.4330 Swiss francs, from 1.4438. //www.quote.bloomberg.com

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