Monday March 10, 06:03 PM
Dollar finds support on Trichet comments, risk aversion
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LONDON (AFP) - The dollar found some support here Monday, gaining ground on the euro on warnings against excessive exchange rate volatility from European Central Bank head Jean-Claude Trichet.
Analysts said the dollar was also helped by its traditional status as a safe haven currency. Risk averse investors usually prefer the dollar to the euro.
The single European currency in late-day trade was at 1.5350 dollars after 1.5359 late Friday, when the euro at one point soared to an all-time high of 1.5464 dollars.
The dollar was at 101.87 yen, down from 102.67 on Friday.
The European Central Bank last week decided to keep its benchmark interest rate unchanged at 4.00 percent in the face of rising inflationary pressures, a move that drove the euro to its record level against the dollar.
Analysts said that some sections of the market now fear the euro may be rising too rapidly.
Addressing central bankers in Basel, Switzerland, Trichet said the ECB was concerned about "excessive exchange rate moves."
"Excessive volatility and disorderly movements in exchange rates are undesirable for economic growth," the ECB chief said.
"Trichet's remarks hit the wires indicating his concern about excessive currency moves, which we believe could drag euro to as low as 1.5250 dollars," said Ashraf Laidi at CMC Markets.
But the dollar nevertheless remains under pressure as indications mount that the US economy is heading for, or already is in recession, with investors expecting more aggressive interest rate cuts by the US Federal Reserve.
The Labor Department reported on Friday the US economy unexpectedly shed 63,000 jobs in February, the most in five years, a dismal piece of news that followed an announcement Thursday that home foreclosures had risen to a record high in the fourth quarter of 2007.
"The significantly weaker than expected US employment report confirmed that the US economy is in a recession," wrote BNP Paribas (Paris: FR0000131104 - news) analysts.
They said the market was now pricing in a three-quarter point cut at the Fed's March 18 meeting, which would bring the benchmark rate down to 2.25 percent.
"It (Frankfurt: A0MLX5 - news) 's critical the US data begin to stabilize over the next few months," said analyst Robert Lind of ABN Amro (Amsterdam: ABAGB.AS - news) .
"If the data gets much worse, markets will start to worry the Fed is going to run out of ammunition. If that happens, the dollar could fall sharply, as it would then have to bear the burden of further easing. This would push up inflation expectations, intensify risk aversion and trigger broad-based weakness in asset markets."
In Europe on Monday, the euro changed hands at 1.5350 dollars against 1.5359 late on Friday, at 156.34 yen (157.71), 0.7627 pounds (0.7619) and 1.5654 Swiss francs (1.5744).
The dollar stood at 101.87 yen (102.67) and 1.0195 Swiss francs (1.0247).
The pound was at 2.0119 dollars (2.0153).
On the London Bullion Market, the price of gold fell to 969.25 dollars an ounce from 972.50 dollars late on Friday. Last Thursday, the precious metal hit a record 992.05 dollars.
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