17 May 2001, 15:58 Forex: Euro drifts slightly lower vs dollar, reverses yesterday's gains
LONDON (AFX) - The euro drifted slightly lower against the dollar
in quiet midday trade, after losing gains made on yesterday's market
talk of corporate- related euro buying, dealers said.
"The supposed demand finishes, the euro drifts back again," Bear
Stearns' currency strategist, Steve Barrow, said.
Halifax chief economist Adam Chester agreed and also pointed to
rising overnight U.S. equity prices as supportive of the dollar today.
But both believe there is light at the end of the tunnel for the
euro.
"The worst of the sell-off is now over," said Chester.
Barrow added, "I think we're possibly at a turning point for the
euro. For the last couple of weeks we've had news which has generally
been pretty bad for the euro. And yet the euro hasn't gone down. That
rather suggests that despite what's gone on with interest rates, the
market might be giving the ECB a little bit more the benefit of the
doubt and the U.S a little less."
He also pointed to uncertainty regarding the Federal Reserve's rate
direction, as general economic weakness in the U.S. co-exists with
pockets of strength.
"It's not giving the market a clear direction of what's going on.
The market needs to see some of its questions answered on whether the
Fed's done enough, not enough, or too much. We think they'll take rates
down to 3 pct," he said.
But Barrow believes further cuts will spark discontent amongst
investors, which could have a positive effect on the euro.
"They'll ask whether the Fed has overcooked the book," he said.
He also highlighted underlying data as indicative of a euro rally.
"The underlying data does not imply the sort of outflows from the
euro area that maybe we've been used to and have seen pretty much since
its inception.
"There's some meat on the story of a stronger euro from here on,
although it will probably take a lot more yet before confidence really
develops."
Meanwhile, sterling came off opening lows, following the euro,
partly because of a sell-off of the euro against the dollar. Sterling
was boosted also by stronger-than-expected UK April retail sales
volumes, dealers said.
Retail volumes rose 0.6 pct on a seasonally adjusted basis from
March and were up 5.9 pct from a year earlier, National Statistics
said.
The AFX News median of analysts' forecast was that April sales rose
0.3 pct from March and 5.3 pct year-on-year.
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