Currencies

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NEWS: Dollar Continues Decline Against Euro

Monday December 6, 7:11 am ET
By David Rising, Associated Press Writer

Dollar Shows No Signs of Recovery Against Euro As Deficits Continue to Weigh on Currency

http://biz.yahoo.com/ap/041206/dollar_5.html

BERLIN (AP) -- The euro hovered near the $1.35 mark Monday as concerns over the U.S. trade and budget deficits and worse-than-expected U.S. employment data continued to weigh on the currency.
The euro was at $1.3453 in morning trading, above the $1.3452 it traded at in New York late Friday after it pushed as high as $1.3460.

Since September, the shared European currency has spiked from around $1.20 over persistent concerns about the U.S. trade and budget deficits, and signals from the Bush administration that it would not step in to support the dollar.

It broke the $1.34 mark for the first time Friday when U.S. employment data came in weaker than expected, and the strength on Monday seems to be the continued effect of that news combined with an overall negative sentiment toward the dollar, said DZ Bank economist Dorothea Huttanus in Frankfurt.

"The trend is your friend, that's the only force that drives markets," she said. "We really don't need any further incentive for the euro to climb higher. It's for the most part sentiment-driven and, of course, the bad numbers from Friday are still at work."

The dollar also continued its drop against other currencies, including the Japanese yen, and was trading at as little as 101.93 yen to the dollar, down from 102.09 yen late Friday.

The 12-nation euro initially fell against the dollar after its 1999 debut, but it has risen some 63 percent since bottoming out at 82 U.S. cents in October 2000.

Dollar weakness has been bringing short-term benefits to the United States, making American exports cheaper in the rest of the world. That has given President Bush little incentive to step in, although the administration still says it has a "strong dollar policy."

It has the opposite effect to European exports, making products like German sports cars or French wines more expensive for the American consumer, or cutting in to producers' profits as they try to hold the prices steady.

European leaders have started to fret that the rapid rise of the euro will hurt their fragile export-driven economic recovery, and European Central Bank President Jean-Claude Trichet has called the currency's steep climb "brutal" and "unwelcome."

Huttanus said she would expect more so-called "verbal intervention" from Trichet before he makes any kind of move to try and prop up the U.S. currency by buying dollars.

"The first thing Trichet needs is support from his colleagues -- if only the head of the ECB says he doesn't welcome this, it's not enough," she said. "We have to have a choir of all the ECB talking together, and only if this doesn't work will we have an intervention."