French No fears boost dollar

FEARS that French voters will vote No to the EU Constitution has kept the dollar strong for the fifth week in a row against the euro.

However, the greenback eased from its seven-month high against the euro, which rose marginally at to $1.2542, compared with Thursday’s seven-month low of $1.2492 by mid-afternoon.

Later in the day, the euro was up at €1.2562 in late trading.

With markets closed for holidays in the US and Britain on Monday, the day after the French vote and two days before a similar referendum in Holland, most trading centred on squaring positions.

Analysts said some investors were short on the euro, essentially betting the single currency will fall further in the week ahead.

At this level the dollar looks to be comfortable, according to Dr Dan McLaughlin.

Niall Dunne said the euro and the dollar are heading into extra time as far as the next moves are concerned.

There is an emerging consensus that economic data favours the dollar, with Europe looking less attractive given the poor outlook for some of the major economies and the drag factor on the new EU Constitution.

While the positive factors favour the US, the currency debate is in a bit of a conundrum.

Fund-flows into the US were solid for the last three months, suggesting central banks favour the dollar over the euro.

However, nagging doubts about the US deficits still linger in global markets and they explain why the euro has been so strong for the past 12 months against the greenback, analysts point out.

In a recent review of the markets, Dr McLaughlin said he believed the tide has turned back in the US’s favour.

Stronger US interest rates and falling oil prices will underpin the currency in the months ahead.

However, the euro could still advance back to about €1.30 by the year end, he said.