HONG KONG (Thomson Financial) - The US dollar slipped against the euro and the yen in afternoon trade in Asia on Monday as
investors deemed the greenback's appreciation last week as excessive, prompting them to take
profit.
"While I have expected the dollar to appreciate, I was a bit surprised that it moved too quickly,"
said Mark Wan, chief analyst at Hang Seng Investment Services Ltd. "The dollar's weakness is just a technical correction."
At 1.00 pm (0500 GMT), the euro was trading at 1.4440 dollars, up from 1.4413 in Sydney this morning and from 1.4430 in late New York trade Friday. The dollar extended its gains versus the euro this morning after rising 1.5 percent on Friday.
The dollar was quoted at 113.03 yen, down from 113.275 this morning and from 113.28 on Friday. The dollar rose nearly 1 percent versus the Japanese currency on Friday.
But the dollar's decline should be short-lived and will probably edge higher against major
currencies towards the end of the year, Wan said.
"By the end of this month, the dollar can get stronger against the euro and will move past the 1.43 level because the US economy is not as bad as it seems. The decision of the US, Europe and other central banks to infuse liquidity into the system will support the dollar," Wan said.
The Federal Reserve last week joined the European Central Bank, the Bank of England, Swiss National Bank and Bank of Canada in easing the global credit crunch by engaging in currency swaps and expanding the range of collaterals they would accept to back up loans.
The dollar rose against major currencies Friday after the inflation rate in the US accelerated in November to the highest in more than two years, raising speculation that the Federal Reserve may no longer reduce its key interest rates as earlier anticipated.
"The dollar is benefiting from the paring back of expectations of a more aggressive Fed rate cuts," said David Mann, currency strategist at Standard Chartered Bank. "But it was just a temporary bounce, as the Fed will continue cutting interest rates."
Standard Chartered predicts the Fed will lower rates further by 50 basis points in the first half of 2008. And unlike Hang Seng, StanChart is betting on a weaker dollar at least until the end of this
month.
"This is not yet the beginning of the dollar's recovery that we are anticipating. Overall, the trend is for a weaker dollar over the short term," Mann said.
Consumer price data released Friday showed US inflation rose to a two-year high of 0.8 percent in November, an ominous reading at a time when the economy is slowing.
The Asian Development Bank is forecasting US growth of 2.2 percent this year and 1.9 percent in 2008, less than the 2.9 percent expansion posted in 2006.
The Fed has lowered its federal funds rate target by one percentage point this year, including the quarter-point reduction announced last week.
Hong Kong 1.00 pm (0500 GMT)
US dollar
113.03 yen
1.1518 sfr
Euro
1.4440 usd
163.23 yen
1.6636 sfr
0.7150 stg
Sterling
2.0192 usd
228.23 yen
2.3259 sfr
Australian dollar
0.8618 usd
0.4268 stg
97.44 yen
New Zealand dollar
0.7615 usd
investors deemed the greenback's appreciation last week as excessive, prompting them to take
profit.
"While I have expected the dollar to appreciate, I was a bit surprised that it moved too quickly,"
said Mark Wan, chief analyst at Hang Seng Investment Services Ltd. "The dollar's weakness is just a technical correction."
At 1.00 pm (0500 GMT), the euro was trading at 1.4440 dollars, up from 1.4413 in Sydney this morning and from 1.4430 in late New York trade Friday. The dollar extended its gains versus the euro this morning after rising 1.5 percent on Friday.
The dollar was quoted at 113.03 yen, down from 113.275 this morning and from 113.28 on Friday. The dollar rose nearly 1 percent versus the Japanese currency on Friday.
But the dollar's decline should be short-lived and will probably edge higher against major
currencies towards the end of the year, Wan said.
"By the end of this month, the dollar can get stronger against the euro and will move past the 1.43 level because the US economy is not as bad as it seems. The decision of the US, Europe and other central banks to infuse liquidity into the system will support the dollar," Wan said.
The Federal Reserve last week joined the European Central Bank, the Bank of England, Swiss National Bank and Bank of Canada in easing the global credit crunch by engaging in currency swaps and expanding the range of collaterals they would accept to back up loans.
The dollar rose against major currencies Friday after the inflation rate in the US accelerated in November to the highest in more than two years, raising speculation that the Federal Reserve may no longer reduce its key interest rates as earlier anticipated.
"The dollar is benefiting from the paring back of expectations of a more aggressive Fed rate cuts," said David Mann, currency strategist at Standard Chartered Bank. "But it was just a temporary bounce, as the Fed will continue cutting interest rates."
Standard Chartered predicts the Fed will lower rates further by 50 basis points in the first half of 2008. And unlike Hang Seng, StanChart is betting on a weaker dollar at least until the end of this
month.
"This is not yet the beginning of the dollar's recovery that we are anticipating. Overall, the trend is for a weaker dollar over the short term," Mann said.
Consumer price data released Friday showed US inflation rose to a two-year high of 0.8 percent in November, an ominous reading at a time when the economy is slowing.
The Asian Development Bank is forecasting US growth of 2.2 percent this year and 1.9 percent in 2008, less than the 2.9 percent expansion posted in 2006.
The Fed has lowered its federal funds rate target by one percentage point this year, including the quarter-point reduction announced last week.
Hong Kong 1.00 pm (0500 GMT)
US dollar
113.03 yen
1.1518 sfr
Euro
1.4440 usd
163.23 yen
1.6636 sfr
0.7150 stg
Sterling
2.0192 usd
228.23 yen
2.3259 sfr
Australian dollar
0.8618 usd
0.4268 stg
97.44 yen
New Zealand dollar
0.7615 usd
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