Thursday, November 04, 2004

Something for which to keep one's eyes peeled.
On Thuirsday [sic] the dollar fell a further 0.3 per cent to $1.2866 against the euro and 0.6 per cent to an eight-year low of SFr1.1869 against the Swiss franc. The greenback also hit a fresh 12-year low of C$1.2034 against the Canadian dollar and slumped to Y105.71 against the yen before a partial fightback.

The dollar's decline was reported to be hastened by selling by oil-rich Middle Eastern governments and hedging by European exporters before the year-end.

The reluctance of Jean-Claude Trichet, the president of the European Central Bank, to explicitly state that the strong euro/dollar rate was hurting the eurozone also undermined the dollar by allaying fears of imminent European intervention. �This was a red flag to euro bulls who wanted to sell dollars,� said Michael Woolfolk at the Bank of New York.

Much will now depend on today's US non-farm payrolls data. The market is expecting 170,000 jobs to have been created in October but David Bloom at HSBC, said that if the greenback failed to bounce on a strong number �that will signal the death knell for the dollar�.

�It would show that it does not matter what the data is, the dollar is going to go down. That would be a crushing psychological blow,� he said.
The USD has been in a near freefall since mid-October, -3.8% on the major currencies index in just three weeks (but -1.9% on the broad dollar index, however, thanks to Chinese pegging). Moreover, 170,000 new jobs in October is a very tall order for this economy, which has produced that many just three times (March-May 2004) since Bush became President.

Don't fret, however. Today the dollar is worth �106. When it falls to �105 (some argue for �100), get ready for massive intervention by the Bank of Japan.


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