Markets uncertain of future direction of dollar

UNCERTAINTY about the future direction of the US dollar has entered the market in the past few days leading to fluctuations in the greenback’s value.

Across markets yesterday the dollar steadied after a period of rapid fluctuation, with analysts putting this down to profit taking by investors.

The single European currency was trading at $1.3308 in London yesterday, marginally down from 1.3338 late on Wednesday in New York.

During the day, the euro had dropped from its new record high of $1.3469 to $1.3190, a fall of more than 2% and then back upwards again. By late afternoon it was trading at $1.3298.

Ulster Bank Markets’ Niall Dunne still believes the euro will head higher and hit $1.40 in the New Year. “If that happens sterling will buy two dollars.”

From an Irish perspective the stronger dollar is bad for exports and the Irish Exporters Association warned recently 15,000 jobs could be at risk if the current exchange rates persist.

Britain is more important to Irish-owned manufacturers, and the euro/stg relationship has been much more stable.

Back in February the euro climbed to 72.50p, but for the past few years has operated within a 66p-69p range. The fact that the Bank of England has held rates at current levels put sterling under some euro pressure which saw it up at 69.21p yesterday afternoon. No dramatic divergence is envisaged.

On the shorter term issuer of the US currency John Snow is to stay at the US Treasury Department and with Mr Greenspan heading the US central bank, the sceptics say the dollar can go only one way and that is down.

That view is becoming pretty universal and some see that as an indication that the trend will soon reverse.

Militating against that view is the huge pressure on the US to fund its occupation of Iraq.

That will continue to put massive pressure on the current deficit while the Bush administration’s commitment to low taxation is adding to the Budgetary deficits.

By end 2004 the US will have deficits of well over $900 billion.

Current circumstances say they will get even higher suggesting that dollar weakness is not going to go away anytime soon, analysts said.