Euro surges on recovery hopes
September 15, 2009
New York - The euro surged to nine-month highs against the dollar on Monday, driven by upbeat European growth forecasts that supported risk appetite.
At 2100 GMT, the single European currency fetched 1.4619 dollars, up from 1.4573 dollars in New York late on Friday.
The dollar rose to 90.92 yen from 90.64 yen on Friday in New York. The dollar had fallen as low as 90.19 yen in earlier trading in Asia, a trough last seen in mid-February.
"It's really a logical extension of the continued dollar weakness that we saw last week, and the break of important technical levels keeps the momentum of the move going," said Vassili Serebriakov of Wells Fargo bank.
The euro had topped 1.45 dollars last week for the first time this year. Under pressure early Monday, the European unit leapt to 1.4652 in intra-day trade, its highest level since December 2008.
"The mentality of the market is to sell the dollar in any rebound that they might see," said Serebriakov.
"It's a question of confidence in terms of market view of the ability of the US to solve the problems, and primarily the fiscal deficit," he added.
The ballooning US public deficit, which is expected to reach 11.2 percent of gross domestic product in the current fiscal year ending September 30, is weighing on the dollar. The Federal Reserve's prolonged near-zero interest rate policy has lowered the dollar's investment appeal.
The euro found support on Monday after the European Commission updated its economic forecasts, projecting the eurozone and the wider European Union would return to growth in the third quarter.
However, the commission forecast that 2009 output would shrink 4.0 percent in the 16-nation bloc and the 27-nation European Union.
"The afternoon recovery does not come as a surprise - this is still a market that has plenty of positive sentiment, which is all too ready to take precedence over any weakness," said Phillip Gillet of IG Index in London.
Dealers noted concerns over the US-China trade dispute, with China on Monday filing a complaint against the United States with the World Trade Organisation over what it alleged were unfair tariffs imposed on Chinese tire imports.
China had earlier responded to the new US measures by announcing an investigation into possible unfair practices in exports of US chicken and auto parts.
"Should these tensions escalate, they threaten to disturb world trade, which would affect the economic recovery," said Commerzbank analyst Antje Praefcke.
Simon Derrick of Bank of New York Mellon agreed.
"The rapid emergence of a fresh trade dispute over the weekend between the US and China is a crisp reminder of how volatile their relationship can be," Derrick said.
"Little surprise then that we believe that developments on the currency policy front between the two nations could prove a key factor for the forex markets through the remainder of the year," he said.
In late New York trade, the dollar slipped to 1.0342 Swiss francs from 1.0376 late Friday.
The pound fell to 1.6571 dollars from 1.6671. - Sapa-AFP
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