28 August 2003, 17:37  Euro shunned as hopes grow for robust US growth

LONDON, Aug 28 - The euro fell close to this week's four-month low against the dollar and five-month troughs on the yen on Thursday on expectations upbeat U.S. growth data could further fan optimism about the world's biggest economy. A recent run of strong U.S. data and a rally on Wall Street have raised hopes the U.S. economy will lead pro-cyclical Japanese and Asian economies out of the doldrums. This has shaved 10 U.S. cents off the euro since June, as investors shifted out of the defensive play of euro zone bonds.
"In the short term, markets are revaluing U.S. growth and that has been driving the dollar higher. Today's U.S. GDP data will contrast well with the euro zone growth which is nearly zero," said Mansoor Mohi-Uddin, chief currency strategist at UBS. "The question is how much of reflation hopes have been priced in. Bonds have stabilised and equities are going sideways. We need further good news to push the market towards the new round of reflation trades." By 1150 GMT, the euro stood at $1.0820 , down half a percent from the U.S. close, having hit $1.0789 on Tuesday. Against the yen it dipped below 127 yen but wariness of Japanese intervention took it back to 127.15. The dollar was unchanged at 117.40 yen , nearly half a yen above a five-week low set on Monday.
STARK CONTRAST
The U.S. Commerce Department releases its second estimate of second quarter gross domestic product growth at 1230 GMT. Economists in a survey forecast a 3.0 percent annualised pace of growth compared with 2.4 percent in the first estimate. Japan enjoyed similarly buoyant growth in the same period with second-quarter GDP at an annualised 2.3 percent. In contrast the euro zone growth was zero in the same period. Weekly jobless claims are due at the same time and forecast at 390,000 new filings compared with 386,000 in the prior week. "The dollar stalled in recent days...but the risk of profit-taking seems limited given that we expect to see strong numbers in the U.S. today and tomorrow," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez. "The trend of selling of bonds and buying equities remains very firm indeed and that underscores the view this is a dollar positive environment."
ANOTHER WARNING
The yen kept a low profile after further warnings on Thursday from Japan's top financial diplomat Zembei Mizoguchi against the euro's rapid moves versus the yen. The Finance Ministry, which spent about nine trillion yen in the first seven months of the year to prevent an export-damaging yen rise, is due to release intervention figures for August on Friday. Analysts expect Japan to have spent one to two trillion yen to hold its currency down in August after selling 2.0272 trillion yen in July. The Tokyo stock market's Nikkei average <.N225>, which rose to 13-month highs on Wednesday, finished lower on Thursday, helping to reduce upward pressure on the yen for now.
Finance Ministry data showed foreign investors were net buyers of Japanese equities last week for the 19th straight week, increasing their purchases to a net 634.5 billion yen from 450.0 billion yen the week before.//

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