Ted Butler: Still unresolved, Part 2

Section:

By Jamie McGeever
Reuters
Tuesday, November 23, 2004

http://www.reuters.com/newsArticle.jhtml?
type=businessNews&storyID=6896867

NEW YORK -- The dollar slumped on Tuesday after news
that Russia may increase the share of euros in its reserves
drove the European unit to a new lifetime high.

Confirmation of last week's talk Russia might make such
a move triggered another bout of dollar selling, underscoring
the depth of bearish sentiment toward the U.S. currency.

Already under heavy selling pressure from dealers
concerned the U.S. is struggling to fund its record trade
and current account deficits, the greenback buckled again
on Tuesday.

"The main thing was the report from Russia that they're
going to boost their euro (holdings) ... but it seems more
of a market-driven move than any fresh news," said Nick
Bennenbroek, currency strategist at Brown Brothers
Harriman in New York.

Alexei Ulyukayev, First Deputy Chairman at Russia's
central bank, told a news conference: "It is unlikely that
the dollar share of reserves will be reviewed. The share of
euros may be reviewed, but first we need to undertake
analysis."

Last week, Deputy Chairman Konstantin Korishchenko
said the proportion of the euro in the basket that helps
guide the value of the rouble was bigger than many
analysts expected.

Dealers used the latest comments to try to take out
euro options barriers at $1.3100 but the move ran out
of steam, and with everyone seemingly on the same
side of the trade the euro's ascent may be a slow one.

"With so much money already positioned for a drop in
the dollar, these gains (in other currencies) are being
very hard fought," Bennenbroek at BBH said.

Mid-morning in New York, the euro was up 0.3 percent
at $1.3077 compared with late on Monday. Earlier
Tuesday, it climbed as high as $1.3093, according to
Reuters data.

Sterling was around 0.5 percent stronger at $1.8697,
as was the Australian dollar, up at $0.7865.

The dollar was weaker at 1.1588 Swiss francs.
Earlier in the session, it fell to a new 9-year low of
around 1.1567 francs.

On a flows-weighted basis, the dollar was also down
at 82.93 . It had traded at a 9-year low of 82.81.

Weakness against the yen was less pronounced due
to resilience in the euro/yen and market wariness about
possible dollar-buying intervention by Asian central
banks.

"The dollar's on a downward path. The real test the
market is going to face is intervention at some point
by Japan," said David Bloom, currency strategist at
HSBC in London.

The dollar was more or less flat at 103.17 yen.

In other asset markets, gold hit a new 16-year high just
shy of $450 and ounce, while crude oil futures in New
York were up around 0.5 percent at $48.84 a barrel.

Treasuries were down ahead of a $24 billion auction of
new two-year notes, with the yield on the 10-year note
at around 4.2 percent.

U.S. stocks opened slightly lower.

Comments last week from Federal Reserve Chairman
Alan Greenspan that reinforced the market view
Washington wants a weaker dollar are still reverberating
around currency markets.

A weekend meeting of Group of 20 finance officials offered
no strong measures to halt the U.S. currency's decline.

The G20 communique did not mention currency volatility
explicitly, a phrase which could have stayed dollar bears'
hands for a while in anticipation of central bank action,
although analysts said fear of intervention had heightened.

"But any intervention we do see will more likely be aimed
at smoothing the dollar decline rather than halting or
reversing it," said Steven Pearson, chief currency
strategist at Halifax Royal Bank of Scotland.

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----------------------------------------------------

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