15 August 2001, 11:53 Forex - Dollar weakens in early London trade on economy worries, euro benefits
LONDON (AFX) - The US dollar pared further gains in early London
trade, under continued pressure from yesterday's report by the
International Monetary Fund which highlighted that the trade deficit in
the US could pose fairly significant risk to the unit.
Dollar weakness helped drive the euro through the key 0.9050
resistance level against the US currency, traders said.
Adam Chester, chief economist at Halifax Group Treasury said: "The
IMF has been banging on this drum for a long time but it seems finally
the market is waking up to that view and is beginning to take the
threat quite seriously."
"We suspect that the recent trend seen could portend potentially a
more serious decline in the US dollar," he added.
He said that the dollar's weakness was enhancing the likelihood of
a 50 basis point cut by the US Federal Open Market Committee on August
21.
The economist also pointed out that there might be some members on
the FOMC who feel the currency is doing some of the work for them in
the sense that if the dollar weakens it helps boost activity.
Meanwhile, the euro was dragged higher against sterling, partly
because of the weakness of the dollar, dealers said.
Chester noted that press reports saying Chancellor Gordon Brown had
instructed the Treasury to begin an assessment for the five economic
tests for the EMU entry had caused sterling to come under pressure
against the single European currency.
"It adds weight to speculations that we could get the conclusion of
the report early next year," he said.
Sterling held firm against the dollar ahead of the Bank of England
MPC minutes of their August 1-2 meeting and labour market reports for
July both due at 9.30 today.
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