MARKETS ARE WATCHING THE NEW U.S. PRESIDENT

Dollar rallies against euro

01-06-2009 | AFP

There are great expectations over U.S. president elect Obama’s stimulus plans to boost the ailing American economy

Panama Star In late morning trade, the European single currency dropped to 1.3694 dollars from 1.3910 dollars in New York late on Friday.

Against the Japanese unit, the dollar climbed to 93.05 yen from 91.79 yen on Friday.

"High expectations for Obama appear to be supporting US stocks and the dollar, although conditions surrounding the US economy are still pretty negative," said Yosuke Hosokawa, head of foreign exchange at Chuo Mitsui Trust Bank.

Traders in Tokyo were relieved that there was no major bad news related to the economic crisis during the New Year holidays, Hosokawa added.

Global stock markets have started 2009 on an upbeat note on hopes the US economy will start to recover this year.

But "it is still unlikely the dollar will continue to rise from current levels as players expect bad (US) job figures" on Friday, Hosokawa said.

"Risk-aversion is expected to continue this year as players are still cautious about the prospects" for the US and global economies, he added.

The dollar also strengthened against the euro, which was fluctuating after a widely watched survey showed eurozone manufacturing activity plunging to a record low in December.

Standard Chartered analysts predicted "a broad-based US dollar decline in the first half of 2009" as the economy worsens and the Federal Reserve adopts unorthodox credit measures after slashing interest rates to almost zero.

As well as US jobs data on Friday, the other key event this week is the Bank of England's latest monthly interest-rate policy meeting on Thursday.

The BoE is widely expected to slash British borrowing costs to a record low level under the current 2.00 percent as Britain stands on the brink of recession, according to traders.

With British interest rates already lower than in the eurozone, the pound has fallen to near parity versus the euro.

In London trade on Monday, the euro changed hands at 1.3694 dollars against 1.3910 dollars late on Friday, at 127.20 yen (127.72), 0.9429 pounds (0.9560) and 1.5066 Swiss francs (1.5034).

The dollar stood at 93.05 yen (91.79) and 1.1022 Swiss francs (1.0865).

The pound was at 1.4507 dollars (1.4544).

The panorama might continue changing over the next few days depending on the behavior of the market.