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Forex outlook:
The dollar hit a record low against the Euro on Monday and more than 20-year lows versus sterling and the New Zealand dollar on worries that problems in the U.S. sub-prime mortgage sector may trickle into the broader economy. Tourist heading to England will pay more than $2 for one U.K. pound, up from about $1.65 at the end of 1997. Against the Canadian dollar, it's the lowest since 1977 and it's the weakest in seven years versus Brazil's real.
Oppenheimer Funds Inc., which is based in New York and manages $250 billion, and Newport Beach, California-based Pacific Investment Management Co., which manages the world's biggest bond fund, say the dollar may reach $1.45 per Euro this year as the Fed keeps its benchmark interest rate unchanged at 5.25 percent.
The currency may end the year at $1.40 per Euro, according to the median forecast of 36 analysts News survey published July. The dollar's “trend will be down over the next couple of years,'' said Richard Clarida, a former assistant Treasury secretary under Bush and now a global strategist at Pimco. The firm manages $687 billion, including the $102 billion Total Return Fund. “A weaker dollar in conjunction with strong demand in the rest of the world is helping the U.S. rebound.''
Looking ahead, the most important pieces of data on the Euro zone calendar are EZ PMI, M3 and the German IFO survey. Steady or softer figures are expected all around. Meanwhile Swiss producer prices were much softer than the market expected in June, but this has not affected the value of the Franc. Next week, we are expecting the KoF report of leading indicators.
The New Zealand dollar broke through the psychological 80 U.S. cent level on Monday, as its high yield and the prospect of an interest rate rise later in the week attracted investors.
The kiwi set a 22-year post float high of $0.7996 late in the local session, having spent much of the day quietly range-reading, and then spiked higher in early offshore trade. "Heavy option-related selling ahead of barriers around the 80 cents region may help cap the topside in the NZ dollar," said Bank of New Zealand currency strategist Danica Hampton. This week's Reserve Bank of NZ official cash rate review on Thursday remained the key event for investors and the prospect of a quarter point rate rise to 8.25 percent was underpinning the kiwi. "The NZ dollar is unlikely to break below 78.80 U.S. cents this week in the absence of a U.S. dollar recovery or a major bout of carry trade unwinding," Hampton said.
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