Dollar Weakens Against Euro
January 17, 2008 10:00 a.m.
The dollar softened versus the euro Thursday following the release of housing data. The buck is strengthening against the yen, as currency investors prepare for testimony by Federal Reserve Chairman Ben Bernanke before Congress.
The euro was at $1.4679 from $1.4657 late Wednesday. The dollar was at 107.40 yen from 107.54 yen. The U.K. pound was at $1.9722 from $1.9628, and the dollar was quoted at 1.1020 Swiss francs from 1.0993 francs.
On the day, the dollar is weaker against the euro, which slid markedly Wednesday. One factor is that European Central Bank governing council member Yves Mersch backtracked early Thursday from dovish comments published a day earlier. Another is a disappointing, although expected, financial earnings report from Merrill Lynch.
Against the yen, the dollar is also down, but is showing significant leaps Thursday morning as risk appetite begins to return after a stark unwind in anticipation of Bernanke's testimony before the House Budget Committee at 10 a.m. EST. He is expected to offer his support for an economic-stimulus package from Congress.
Home construction plunged 14.2% in December, tumbling to its lowest point in 16 years, after falling 7.9% in November, the Commerce Department said Thursday.
The big decline surprised Wall Street. The median forecast of economists surveyed by Dow Jones Newswires was a 5.0% drop.
But the effect on the dollar was mollified by the release of weekly jobless claims at the same time, which fell for the third straight week.
The fundamental near-term outlook for the dollar still looks bleak, say analysts, especially as U.S. interest rates are still expected to be cut relatively aggressively at the end of January -- no matter Wednesday's jump. That was about euro weakness, which is still a factor Thursday. ECB's Mr. Mersch, a usually hawkish official, acknowledged that euro-zone growth might have to be downgraded from 2.0% this year Wednesday. Markets saw this as evidence that the ECB may not be in rate hiking mode after all.
"His remarks fed what is arguably a growing perception that the ECB has remained hawkish in part to discourage overly zealous wage demands from labor unions, but that rates are unlikely to move higher," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.
But early Thursday, Mr. Mersch clarified that the central bank did not discuss cutting interest rates at its Jan. 10 policy meeting, causing a slight reverse to the consequent dollar boost.
"The key question we must grapple with is how much is already priced into the currency market, and whether shifts in the interest rate outlook elsewhere might be more important," Ms. Sutton said.
Merrill Lynch matched Citigroup's massive fourth-quarter net loss Thursday, as the company recorded $14.6 billion in losses related to subprime mortgages and complex debt instruments, and write-down expectations as high as $15 billion.
The dollar's recent decline against the yen has incited chatter that Japan might intervene in its foreign exchange market if the buck drops lower to 100 yen.
A former top Japanese currency official said Thursday that even if the U.S. dollar falls to around 102 yen, government intervention is highly unlikely.
"Japan would need agreement from the U.S. for any intervention, but the U.S. wouldn't comply," said Eisuke Sakakibara, Japan's former vice finance minister for international affairs. "Japan can't intervene either verbally or physically. A U.S. Treasury document last year clearly states the U.S. is against even verbal intervention."
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