The dollar climbed against the euro on Monday, drawing support from comments by European Central Bank President Jean-Claude Trichet, who said “brutal” currency moves were unwelcome.
Trichet, speaking after a meeting of G10 central bankers in Basel, Switzerland, said: “There was a mention by Europe that excess volatility and brutal moves were not welcome and not appropriate. We are concerned. We are not indifferent.” he added.
In late New York trade, the euro was fell to a low of $1.2738 after touching a record high of $1.2898, according to Reuters data. This marks the seventh record-setting session for the euro in the past 10 days.
“There are three reasons for the dollar rally -- Jean, Claude, and Trichet,” said Jason Bonanca, foreign exchange strategist at Credit Suisse First Boston in New York. “The market to some extent is reversing its position on Trichet’s commentary on Thursday, which indicated perfect comfort with the exchange rate,” he added.
The dollar traded lower against the yen at 106.41 yen, with continued wariness that Japanese authorities could step in to sell yen to slow the currency’s export-damaging rise against the greenback.
Against the Swiss franc, the U.S. currency was firmer at 1.2229 francs. The pound was down against the dollar at $1.8508 (GBP-) after climbing to $1.8577, its highest level since September 1992.
Trichet comment raises intervention risk?
Some analysts said Trichet’s statements pose the risk of possible ECB intervention to sell the euro against the dollar.
“Today’s remarks certainly do move us marginally nearer to unilateral ECB action to sell the euro/dollar,” said Sean Callow, currency strategist at IDEAGlobal in New York. “But no doubt, the ECB would prefer to use threats than overt intervention,” he added.
Other European policy-makers have also expressed concern over the euro’s rise, which has been hurting exports in the euro zone. Italian Deputy Industry Minister Adolfo Urso said on Monday that Italy would have an emergency situation if the euro rises to $1.30 and urged the ECB to cut interest rates.
Analysts said that Trichet’s comments do not suggest a major reversal of the greenback’s downtrend.
“What he said today is more about pace and less about trend,” said CSFB’s Bonanca.
“In order for Trichet to do something that is really meaningful for the exchange rate, he has to say the euro is so strong that it is making inflation fall below levels that are within our target range and therefore we’re considering a cut in rates,” said CSFB’s Bonanca.
Traders said even without Trichet’s comments, the euro was due for a breather after a furious rally in recent months.
“There have been a couple of attempts to get to the $1.29 level but the euro is unable to get ... above there. And we’ve heard rumors of a number of official sellers at $1.2880, but this is not intervention,” said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
Rampant dollar selling has been driven largely by worries over the U.S. current account deficit and expectations that U.S. interest rates will remain low for some time, diminishing the appeal of dollar-denominated assets.
On a relatively light day for economic data, the Federal Reserve Bank of Kansas City said on Monday its manufacturing index for December came in at 1, down from 6 in November. The Chicago Federal Reserve Bank said its Midwest manufacturing index fell 2.6 percent in November to 109.1, after a revised 0.6 percent fall in October.