Currencies: Europe's Where the Action Is Today
The attention of the
foreign exchange markets remains focused on Europe today, as heavy speculation on the British pound sterling and further euro intervention drove both higher against the dollar.
With a meeting of the
G7
nations scheduled for next month, the currency markets are becoming more aware of the possibility of intervention, led by the
European Central Bank
in support of the euro. The euro, most recently trading for $0.8563, up from yesterday's close of $0.8530, is at a price similar to where the ECB intervened last fall, giving rise to the recent bout of intervention speculation.
Still, "The risk of intervention is close to zero," said Tony Norfield, the global head of foreign exchange research at
ABN Amro
in London. "But the markets are still concerned."
The ECB is not helping to quell the intervention talk either, as the ECB Chief Economist
Omar Issing
fueled it further when he said this morning that a stronger euro was desired. He then added that intervention was a tactic that the ECB could, and would, use.
In this morning's currency action, "there's more speculation around the sterling than anything else," Norfield said. Last week, the pound dropped to 15-year lows after Prime Minister
Tony Blair's
re-election, driven down by investors' belief that the victorious
Labour Party
would push for a currency merge with the euro. The sterling has had a tough time since then.
"The selloff in sterling over the past week is overdone," said Norfield, whose sentiment echoed through the markets this morning as the pound surged higher. The pound was lately trading for $1.3863, up strong from $1.3739 at yesterday's close.
Re-energized worries over Japan's ailing economy battered down the yen again this morning, after weak GDP data showed that the country may be headed for its second recession in two years and fourth in the past decade. As investors this morning were anticipating an easing of Japanese monetary policy, the yen slipped to three-week lows against both the dollar and euro.
But Norfield says that "the things that drive the yen have little to do with the economy." He said fund flows in and out of the markets were more pertinent. Otherwise, he said, the yen would be valued at a much lower price than it is now.
The dollar was lately trading for 122.04 yen per dollar, up from yesterday's close of 121.65 yen. The euro also was gaining, moving up in price to 104.46 yen per euro, from 103.73 yen at the close yesterday.
The U.S. dollar was losing value against the other dollar players this morning. The Australian buck crept up to $0.5268 from $0.5254 at Tuesday's close. The U.S. dollar, meanwhile, fell slightly to the Canadian dollar, trading for C$1.5210 this morning, from C$1.5238 yesterday.
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