Currencies: Stocks' Bounce Bolsters Dollar

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The bounce in the U.S. stock indices has supported the dollar overnight and has kept the pressure on the euro.

Following the trade numbers, the yen opened firmer at 104.40. The euro is marginally lower at 94.65 after holding in a narrow range overnight. The key euro/yen cross is at lower levels around 98.70.

The U.S. trade deficit for February came in at $29.24 billion after January's $27.45 billion deficit. The deficit was larger-than-anticipated.

Once again, European leaders have attempted to talk up the euro but without much success. German Finance Minister

Hans Eichel

said that he wanted a strong currency but that internal stability was just as important.

"I want a strong euro. But the exchange rate is not the only goal either for the U.S. central bank or for the European central bank," he said. He also said that there was," amazingly little risk of inflation," which seems to lower expectations of further rate rises.

Italian industrial orders for January fell a seasonally adjusted 8.8%, the largest drop in this index since February 1999. These data were quite negative and followed a 1.2% drop in December. The resignation of Italian Prime Minister

Massimo D'Alema

is another factor raising questions about the euro.

"The focus of attention remains the U.S. stock markets, especially the

Nasdaq

," says Audrey Childe-Freeman of

CIBC World Markets

in London. "The recovery of the

Nasdaq

in the past couple of days is a positive for the dollar and the inability of the euro to move higher when the U.S. indices sold off on Friday shows the weakness of the euro," says Childe-Freeman. In addition, she sees political problems in Italy as a further reason to stay short of the euro.

U.S. dollar/Canada has eased further from its best levels and is opening around $C1.4785.

The dollar/Swiss franc has remained soft and is opening in the middle of the overnight trading range at SF1.6606.

Sterling is largely unchanged from yesterday's close and opened around $1.5815. The outlook for interest rates in the U.K. remains very confused. After price data yesterday which indicated little inflation pressure, today the minutes of the April minutes of the

Monetary Policy Committee

were quite hawkish and suggest a potential rate rise in May. The MPC was split in its decision to leave rates unchanged in April and clearly left the door open for a rise in the near term.

The Australian dollar has remained steady overnight. After seeing overnight lows of $0.5930 the $A opened in New York at $0.5975. The $A was not helped by the overnight announcement of an interest rate rise in New Zealand in which the

Reserve Bank of New Zealand

raised its cash rate to 6% from 5.75%. However this move suggested that the Australian central bank might also raise rates again in the near future.