The Dollar falls to $1.40 against the Euro for the first time since January

Tammy Wally
22 May 2009

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The dollar declined beyond $1.40 against the euro for the first time in four months on speculation U.S. creditworthiness deteriorated and near-zero borrowing costs made U.S. assets less attractive to investors. The yen rose to a nine-week high versus the dollar after Japan’s Finance Minister Kaoru Yosano said the government won’t intervene in the currency market and the Bank of Japan raised its economic assessment. The dollar may be on the “threshold of broad-based” weakness in the medium term, according to Citigroup Inc. “In addition to a close on the week above $1.3739 solidifying this development, a weekly close above $1.3722 would be a bullish” sign, Citigroup analysts Tom Fitzpatrick in New York and Shyam Devani in London, wrote in research yesterday.

The euro may keep rising against the yen after the 50-day moving average for the currency pair climbed through the 200-day moving average. “The euro-yen story is tied up in one’s view of the green- shoots story, meaning whether one believes that the improvement in survey-based leading indicators will translate into a sustainable recovery,” said David Powell, a currency strategist in London at Bank of America-Merrill Lynch. Technical indicators “suggest some short-term gains. The euro-yen could also benefit from the euro-dollar rise.” The Bank of Japan raised its view of the economy for the first time in almost three years today on signs that a record contraction in the first quarter represented the worst of the recession.

The European Central Bank’s Governing Council discussed a package of asset purchases worth about 125 billion euros ($170 billion) this month, more than twice the amount finally agreed upon, people briefed on the talks said. The package proposed at the May 7 council meeting included buying commercial paper and corporate bonds, said the people, who declined to be identified because the discussions were private. After the meeting, President Jean-Claude Trichet announced plans to acquire 60 billion euros of covered bonds, low-risk securities backed by mortgages and public-sector loans. An ECB spokeswoman declined to comment.

Finotec Analysis Team
22 May 2009

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