17 September 2001, 12:37 Forex - Euro stronger in early London trade on fears over US economy
LONDON (AFX) - The euro strengthened slightly in early trade from
afternoon Tokyo levels, on continuing concern over how badly the US
economy has been damaged by terrorist attacks, dealers said.
They said there are also nerves ahead of the reopening of the US
equity markets later today.
"I think the market is still trying to come to terms with what has
been happening over the past few days so the rise (in the euro) is
understandable," Neil Parker, a currency strategist at Royal Bank of
Scotland (RBS), said.
"But if it continues up it could trigger intervention to staunch
the dollar slide," he added.
Michael Klawitter, a currency strategist at West LB said: "The
market focus will be on the opening of the US equity market, which
serves as a barometer for general market sentiment. While a sell-off is
inevitable, the Fed as well as other market participants are likely to
do all they can to stabilise sentiment given the substantial
implications of equity prices on consumer confidence. This leaves the
door wide open for an inter-meeting rate cut and we do not expect stock
prices to move into free fall."
"Judging from the sharp rise in gold and oil prices on Friday and
the subsequent sell-off in the dollar, the forex market may already
have priced in most of the action in equities today, which should help
to stabilise the dollar around current levels in the very short run.
However, looking further down the road, the ongoing high level of
global risk aversion should keep the pressure on the dollar as doubts
about the US' ability to finance their current account deficit will run
high," he added
The yen was slightly stronger as the impact of intervention by the
Bank of Japan (BoJ) wore off, dealers said.
"The yen has been pushing back higher, but has been much higher
than this recently. The Ministry of Finance is determined to stop the
sell off in the dollar," Parker said.
"As far as the dollar is concerned, it will trade flat to slightly
lower over the next few weeks. What will be important is how the US
stock market reacts after having been open for a while," he added.
Klawitter said the BoJ intervened on its own as the dollar-yen
struggled to hold the 117 level.
"Further intervention is to be expected ahead of the end of
September as capital repatriation plus dollar weakness will keep the
yen well supported," he said.
Sterling largely tracked but lagged the euro with no domestic news
to trade on.
"Sterling is following the euro and the general tide. There are
concerns that the fallout from the US will hurt the global economy and
impact on the UK manufacturers even more," Parker at RBS said.
Parker said news that the Federal Reserve and the Bank of England
have established a temporary 30-bln-usd swap facility, had no impact on
the market.
"The swap facility is basically an emergency measure to provide
liquidity," he said.
Klawitter at West LB said safe haven flows will keep the Swiss
franc on a strengthening trend.
"Besides its natural safe haven role, the Swiss franc also benefits
from Switzerland's huge current account surplus," he said.
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