Dollar leaps to record against euro and 3 1/2-month high against the yen

Economy's strength helps power the surge


January 29, 2000|By BLOOMBERG NEWS

NEW YORK -- The dollar surged to a record against the euro and a 3 1/2-month high against the yen yesterday on faster-than-expected economic growth and the prospect of higher interest rates in the United States.

The dollar's gains were amplified by speculation that a hedge fund was forced to sell positions in currencies such as the euro and the Australian dollar.

The dollar climbed to 97.67 cents per euro, from 98.82 cents late Thursday in New York. It rose as high as 97.39 cents per euro, equivalent to more than 2 deutsche marks per dollar -- a 10-year high against the German currency, the biggest component of the 11-nation euro.

"U.S. economic strength continues to make returns here more attractive than other countries," said Robert Blake, senior economist at NatWest Global Financial Markets. The United States is "just pulling away from other countries." Indeed, the dollar gained against most of the world's currencies yesterday. It posted one of its biggest-ever gains against the Australian dollar, jumping 4 percent. It also had its best day in about four months against the Canadian dollar.

Traders speculated that the Australian dollar and the yen were among the currencies sold by a large hedge fund.

The euro's 3.5 percent loss against the dollar this week was its worst since the regional currency was introduced at the start of 1999. The decline accelerated as automatic sell orders on the euro were triggered, traders said.

At the same time, the dollar rose to 107.10 yen, and earlier reached 107.25, an increase of more than 2 yen from 105.11 Thursday and its highest level since Oct. 15.

Expectations of faster U.S. growth were reinforced by yesterday's report that the economy expanded at a 5.8 percent clip in the fourth quarter, compared with the 5.2 percent growth rate forecast in a Bloomberg News survey.

The rate of U.S. expansion is more than twice the 2.3 percent in the euro's 11-nation region in the third quarter. "The simple fact is that, between the two regions, [the United States] is the one that's growing faster," and that will attract investors, said Karl Halligan, chief trader at CIC Bank New York. Not only is the U.S. economy sustaining higher growth, but higher interest rates here also provide a better return than in Europe, boosting the dollar, he said.

The dollar surged as much as 2 percent against the yen. Its climb began in early New York trading on speculation that Japanese financial authorities are leaning toward selling yen to stall the currency's rise. Traders cited a Jiji Press report that Japan's Ministry of Finance proposed to boost the amount of securities that can be issued to raise funds for yen selling by 10 trillion yen ($95 billion). The report did not cite sources.

"It does not mean they're ready to intervene," but it shows their intention, said Keisuke Aso, manager of foreign exchange trading at Bank of Tokyo-Mitsubishi Ltd.

In other trading, the dollar rose against the British pound to $1.6201 per pound from $1.6395 and against the Canadian dollar to C$1.4457 from C$1.4347.

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