Dollar Rebounds from Record Lows Versus Euro


The dollar surged from record lows against the euro on Thursday as traders covered short positions after ECB President Jean-Claude Trichet's unchanged inflation views did not give the single currency upward momentum.

Analysts said traders had sold the dollar in anticipation of tougher comments from the European Central Bank chief, who told reporters the ECB's general sentiment on rates and the economic outlook had not changed over the past month. The ECB left its key lending rate steady at 4 percent.

The euro reversed gains versus the dollar to last trade at $1.5754, down 0.5 percent on the day, after surging to an all-time peak of $1.5912 in overnight trade, according to Reuters data.

Traders ignored data showing that the U.S. trade deficit widened unexpectedly to $62.3 billion in February from $59.0 billion in January. Analysts polled by Reuters had expected a shortfall of $57.5 billion.

The dollar's fight back was also helped by Trichet's remarks that recent volatility on foreign exchange markets was excessive and was to be deplored. His remarks came ahead of the Group of Seven meeting in Washington starting on Friday.

Analysts do not expect a change in language on currencies, with the focus most likely too be on the credit crisis, when the G7 releases its communique.

Trichet's warning that financial market tensions could last longer and hurt the euro-zone economy more than expected also aided the dollar, analysts said.

The ECB's inflation-focused stance contrasts with that of the Federal Reserve, which has slashed its benchmark fed funds rate target by three percentage points since mid-September to 2.25 percent and is expected to cut at least another quarter point in late April.

As well as prospects for further unfavorable moves in yield differentials, the dollar has come under pressure from concerns about the U.S. banking sector.


TradingEconomics.com, Reuters
4/10/2008 10:00:05 AM