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Will NYSE bullion fund increase demand for real gold or just be more paper?

Section: Daily Dispatches

By Gertrude Chavez
Friday, November 12, 2004

NEW YORK -- The dollar slumped across the board Friday
as dealers shrugged off positive U.S. economic data amid
concerns about the currency's shaky fundamentals.

The dollar initially inched higher against the euro after a
stronger-than-expected University of Michigan consumer
sentiment survey but soon reversed course.

With a widening U.S. current account deficit -- broadly, a
measure of the country's global trade -- analysts say it is
difficult not to bet against the greenback.

"The current account deficit is the mantra being chanted
by dollar bears who are finding inner peace shorting the
buck," said Andrew Busch, global FX strategist, at BMO
Nesbitt Burns in Chicago. "However, six days of the same
wide ranges is providing plenty of negative karma and
doubt. It doesn't end today," he added.

By mid-afternoon in New York, the euro was trading at
$1.2978, up around 0.57 percent on the day, and within
half a cent of its record high of $1.3005 set Wednesday.

Against the Swiss franc the dollar dropped 0.5 percent
to 1.1708 francs. Sterling was sharply higher at $1.8577.

The preliminary U.S. consumer sentiment index, as
measured by the University of Michigan, rose to 95.5 in
November from 91.7 in October. The November reading
beat the market's consensus expectation for a reading
of 93.0.

"Overall, the report was higher than expectations and
does provide more evidence that the pace of U.S.
economic growth may be accelerating," said Alex
Beuzelin, foreign exchange market analyst with Ruesch
International in Washington.

"But that does not change the market's concerns about
the U.S. current account deficit and the perceptions that
U.S. officials view a weaker dollar as a means to correct
that significant deficit," he added.

Beuzelin was referring to speculation this week in United
States and Japanese media that the U.S. government will
tolerate a weaker dollar.

The Nikkei Financial Daily reported on Friday that
Washington was set to accept a weaker dollar to cushion
the economic impact from tighter monetary and fiscal
policies and reduce the current account deficit. That
supported the yen after falling earlier in the session on
weaker-than-expected economic growth in the
July-September period.

The Nikkei article gave no sources for its conclusion and
analysts sought more details before lending it credence. But
the article said the dollar would need to fall by up to 20 to 30
percent in order to halve the ratio of the U.S. current account
deficit to gross domestic product.

Against the Japanese yen the dollar weakened to 105.45 yen,
down more than 1 percent on the day. Analysts also said that
the yen was helped by speculation China may move earlier
than first thought to make its foreign exchange regime more

China's yuan currency is closely pegged at around 8.28 per
dollar and many analysts believe that a loosening of the peg
would cause the yuan and other Asian currencies to appreciate.

Earlier on Friday a Commerce Department report showed U.S.
retail sales in October grew 0.2 percent compared with an
upwardly revised 1.6 percent increase in September.
Economists had expected an increase of 0.2 percent in

Sophia Drossos, currency strategist with Morgan Stanley in
New York, said while the data were "an underlying positive for
the economy," they had little impact on the dollar, "which is
just trading on policy issues right now."

"The market really is ignoring the economic news out of the
United States and not really paying attention to relative growth
and interest rate differentials," she added.


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