Dollar continues to gain on the euro

THE dollar rallied further against the euro yesterday despite poor data from the US in recent days.

Having traded Tuesday at $1.2041, the dollar gained further to $1.2053 against the euro on the markets yesterday, despite a fall of 0.2% in retail sales for May.

US treasury figures showing a sharp drop in the flow of funds to the US for April and March failed also to halt the euro’s continuing slide.

Neither did revelations that the trade deficit hit $57bn for April pointing to a total deficit of $686bn in 2005. That’s an 11% hike on the 2004 figure of $617bn and a record since the economy started its descent into deficits under the Bush Administration.

At the end of 2004 concerns about the deficit pushed the euro to a record high of $1.3667.

Earlier this year forecasters suggested the euro could maintain its surge and end the year at close to $1.40 or higher. This time last year the euro or was trading at around the $1.20 mark and ended up at a record high.

Some analysts suggest the dollar rally may be overdone, raising prospects of a euro recovery in the months ahead.

However, political turmoil over the constitution and concerns about another cut in ECB rates look likely to keep the euro on the back foot for some time. Niall Dunne, economist, Ulster Bank Markets, suggests the situation is hard to call, but argues that it would be wrong to write off the euro, on the basis of past experience.

The dollar’s nine-month high to the euro contradicts market wisdom that higher oil prices weaken the dollar. That piece of wisdom isn’t holding up at this stage either and Mr Dunne said the political difficulties in Europe could keep the euro weak, relatively speaking.

Meanwhile, crude oil traded near a seven-week high amid concern refiners will be unable to meet surging global demand for distillate fuels such as diesel and heating oil.

Oil rose 3.9% after a report on rising distillate demand in Europe helped push New York heating oil futures to their second-highest close.

Lack of refining capacity is driving crude prices, said Saudi Arabian Oil Minister Ali al-Naimi ahead of today’s meeting of OPEC, which is expected to raise its output quota for a second time in three months.

“Nobody wants to see any bombshells” from the meeting, said Mike Armbruster, co-founder of Altavest Worldwide Trading in Laguna Hills, California.

Peak oil expert Colin Campbell, resident in Ballydehob in West Cork, has warned of major difficulties ahead and the end of global economics as we know it.

Basically the problem is that demand is beginning to outstrip supply he told a major oil conference in Lisbon recently.