The dollar hit the year's highs against the euro and Swiss franc on Wednesday and approached 2004 highs against the yen, maintaining its recent bull run on expectations of a pick-up in the long-dormant U.S. jobs market. A jump in the employment component of Monday's U.S. Institute of Supply Management report bolstered expectations of a strong reading in Friday's non-farm payrolls. Traders also said much of the dollar buying was technically driven short-covering, after the euro fell below key support levels versus the dollar on Tuesday. "Technically, the euro move was extremely significant, now the onus is with the sellers," said Ian Gunner, head of foreign exchange research at Mellon.
"Unless the ECB says there is no reason to cut rates and the payroll numbers are awful, we are heading for $1.18-1.20 in the next two to three weeks." Talk the European Central Bank might cut rates at its meeting on Thursday also hit the euro in the past week although the euro zone short term interest rate market has now more or less priced out an imminent rate cut, mainly because of the single currency's fall. The euro fell to levels around $1.2150 , its worst showing since mid-December, but recovered to $1.22 by 0830 GMT, down slightly from the U.S. close.
HUGE EURO DROP
Tuesday's huge loss of 2.35 cents was the single currency's biggest single-day loss in absolute terms since its launch five years ago. The U.S. dollar rose above 1.30 Swiss francs for the first time in three months. The dollar has reclaimed more than six percent from last month's record lows against the euro and five percent from 3-1/2 year troughs versus the yen, leading some analysts to declare that its two-year downtrend may be over. The dollar was at 110.15 yen , little changed on the day and slightly below four-month highs around 110.40 yen set on Tuesday.
The British pound lost more than 0.5 percent to hit a one-month low around $1.8290 . The Australian dollar tumbled nearly two percent at one stage to hit a two-month low of $0.7485 , after Australia left interest rates steady at 5.25 percent. The euro zone services PMI for February is due at 0900 GMT, forecast at an expansionary 57.10, down slightly from January's 57.30. The U.S. Institute of Supply Management releases its February non-manufacturing index at 1500 GMT, forecast at 63.0 from 65.7 in January. Deputy treasury ministers and deputy central bankers from the Group of 20 developed and emerging countries, including China and India, meet in Leipzig, Germany, on Wednesday.
INTERVENTION BEARS FRUIT?
Japan's heavy yen-selling since last year may have finally borne fruit, some analysts said. "With Japan having sold 10 trillion yen so far this year, the demand-supply balance of the market seems to have changed," said Kikuko Takeda, market economist at Bank of Tokyo-Mitsubishi in Tokyo. Japan stepped up yen-selling intervention this year, after it sold a record 20 trillion yen ($182 billion) last year, in an effort to prevent the currency from rising rapidly and damaging the nation's export-led recovery. Market sentiment has changed so much that the dollar showed little reaction to Federal Reserve Chairman Alan Greenspan's rare straightforward comments on Japan's intervention late on Tuesday. "The current performance of the Japanese economy suggests that we are getting closer to the point where continued intervention at the present scale will no longer meet the monetary policy needs of Japan," Greenspan told the Economic Club of New York. The Fed chief also said it seemed likely that Tokyo's rate of accumulation of dollar assets "will have to slow at some point and eventually cease" once the current situation of declining prices, or deflation, is past. Greenspan also said that U.S. interest rates must rise eventually. "The Federal Funds rate is accommodative and at some point it will have to rise back to a more neutral state, because it is inconsistent with general long-term stability," he said. ///