Reply #49: FOREX-Market warms to euro after giving it cold shoulder [View All]

[54anickel]

http://www.forbes.com/markets/newswire/2004/03/25/rtr1312106.html

NEW YORK, March 25 (Reuters) - The dollar fell on Thursday - a byproduct of investors purchasing euro's in a short-covering move that puts profits in their pockets after the euro zone currency suffered several days of setbacks.

The move brushed aside earlier modest dollar strength after a sharp upward revision in the Federal Reserve's favored measure of inflation. That indicated the central bank might not be as patient about raising interest rates.

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"But overall people are looking to sell euros on its rallies and add to short positions because next week's U.S. jobs report is the focus, and people think it will be strong and send the euro down into the high teens," he added.

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Earlier, the final revision of U.S. fourth-quarter gross domestic product came in as expected, up 4.1 percent. However, the core personal consumption expenditures (PCE), a measure of how much inflation is contained within consumer purchases, was revised up to 1.2 percent from the previous estimate of up 0.7 percent.

The news that inflation in the United States is running higher than previously thought raises the ante on U.S. interest rates rising sooner than expected.

Higher rates would be beneficial to the U.S. currency, which has been shunned for higher yielding currencies.

"The sharp upward revision of the PCE does not change the interest rate outlook dramatically, but on the margins, fed funds futures are likely to move a potential rate hike a month or two closer in," said Greg Anderson, senior currency strategist at ABN AMRO in Chicago.

"That is something the FX market is hyper-sensitive to at the moment because the rate gap with the ECB (European Central Bank) could close to zero within six months. That is a dollar positive going forward," Anderson said.