Dollar Has Biggest Gain in 9 Months Against Euro After Report

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09/04 11:32 Dollar Has Biggest Gain in 9 Months Against Euro After Report By Geraldine Ryerson-Cruz

New York, Sept. 4 (Bloomberg) -- The dollar had its biggest one-day gain in nine months against the euro after a U.S. manufacturing index increased more than expected, signaling the world's largest economy may be recovering.

The National Association of Purchasing Management's manufacturing index increased to 47.9 last month from 43.6 in July. Economists had forecast a reading of 44. All three major U.S. stock indexes gained after the report, adding to demand for dollars as investors moved money into the country to buy shares.

``The NAPM number is really the big story for the dollar as it reaffirms'' expectations for a recovery in the U.S. economy, said Gregory Salvaggio, vice president of currency trading at Tempus Consulting in Washington. ``This push up in equities has certainly helped the dollar a good deal.''

The dollar jumped 2.2 percent to 88.77 U.S. cents per euro, its highest level since Aug. 9, from 90.75 late yesterday. It's the biggest one-day rise since Jan. 3. The dollar also rose to 119.07 yen per dollar from 118.74.

While a NAPM index reading below 50 still signals a contraction, the higher-than-forecast number last month put it at its strongest level since November, suggesting an economic pick-up may be near. The index hasn't shown an expansion since July 2000.

The U.S. currency's gains began when Hewlett-Packard Co. said it agreed to buy Compaq Computer Corp. for $25 billion. Devon Energy Corp. also said it will pay $4.6 billion for Anderson Exploration Ltd. of Canada, and Liberty Media Corp. will pay Deutsche Telekom AG 5.5 billion euros ($5 billion) for six German TV systems.

``There's some faith being restored in the health of U.S. companies, with those with stronger balance sheets buying weaker companies,'' and that's a healthy sign, said Salvaggio. ``If Wall Street holds onto its gains today, we'll see the euro fall back to 88 cents.''

The dollar extended its gains after breaking past the 89.50 cent-per-euro level, which triggered a cascade of orders to sell euros for the U.S. currency, traders said.

Yen

The yen fell for the first time in four days against the dollar after Japan's vice finance minister for international affairs, Haruhiko Kuroda, reiterated that further yen gains could prompt Japan to sell the currency to weaken it. The yen has gained 4.6 percent against the dollar this quarter even as the world's second-largest economy has sputtered.

``Recent rises in the yen have been unusual,'' Kuroda told reporters this morning. ``We are closely watching the currency market and we are ready to take action if necessary.''

Japanese officials are concerned a strong currency will make the nation's products more expensive abroad, crimping exporters' sales and further slowing the economy.

In other trading, the dollar rose against the British pound to $1.4454 per pound from $1.4539, against the Swiss franc to 1.6977 francs from 1.6717. It was little changed against the Canadian dollar at C$1.5505 from C$1.5510.

Yeah Right - The Recovery has started. Manufacturing is in deep recession around the world (except China), unemployment is on the rise everywhere and that's supposed to signal a recovery. HP buys Compaq and they'll be laying off 10,000 after the purchase is digested. OPEC has decreased production and oil will be rising in the near future. Consumer confidence is waning and the domestic auto industry continues to suffer slower sales. The NAPM report is just a blip, nothing more. September & October promise to be extremely volatile.

-- Guy Daley (guydaley1@netzero.net), September 04, 2001

Answers

Blips, blips, blips. Every major recession has had its momentary upward blips. Look at history. Nothing new about this. Major trend is still downward. When the consumer finally gives up the ghost, because of all the layoffs, the downward spiral will resume, and with renewed force.

-- Wayward (wayward@webtv.net), September 05, 2001.

Yes indeed, Wayward, I think it is important to keep your point in mind as we enter this increasingly dangerous phase of the unwinding. Don't confuse the blips with the actual trend. Watch the fundamentals, they haven't changed for the better.

Denial: it's often human nature to seek data confirming what you WANT to have happen, no matter how transient or illusory the data may be. Witness yesterday's silly stock rally.

-- Andre Weltman (aweltman@state.pa.us), September 05, 2001.


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