Dollar Virtually Flat Against Euro

Wed Aug 4, 2004
By Jamie McGeever

NEW YORK (Reuters) - The dollar was virtually flat against the euro on Wednesday, its overnight gains wiped out by a selloff in New York sparked by heightened security tensions.

A small blast near Athens, where the Olympic Games start next week, and security-related rumors fueled buying of euros and Swiss francs, a refuge in times of geopolitical worries.

Short-term accounts, said to be long dollars, used these reports as an excuse to cover positions ahead of the crucial U.S. jobs report for July due out on Friday, dealers said.

A weak gauge of employment in the Institute for Supply Management's non-manufacturing index for July also helped push the dollar to session lows against its major European rivals.

The headline ISM number was a stronger-than expected 64.8, up from June's 59.9, but the employment component fell from 57.4 to 50, the dividing line between growth and contraction.

"The euro went down to $1.1975 on the headline number but people have reversed a bit here," says John McCarthy, director of currency research at ING Financial Markets in NY. "It has forced people to look again at Friday's employment numbers."

By late afternoon trade in New York, the euro was trading at $1.2045, hardly changed from $1.2050 late in New York the previous day. It had spiked up to session highs around $1.2067 after a minor blast just outside Athens.

Traders were also unsettled by rumors, later denied, that a plane flying across the Atlantic from London had gone missing.

"The ISM's employment component moved the euro back up to $1.20. Then the Athens news gave (it) some legs," said David Leaver, senior trader at Gain Capital in Warren New Jersey.

Leaver predicted that between security concerns and declining expectations surrounding Friday's U.S. jobs report, the currency market was likely to be a bit messy this week.

The Swiss franc traded higher across the board due to security-tension news. The dollar fell 0.2 percent to 1.2764 francs, as did the euro to 1.5370 francs.

"It started with dollar/Swiss," said the chief dealer at a large European bank in the U.S., "and it's all short-term driven."
Against the yen, the dollar held its gains at 111.14 yen. Sterling was slightly weaker at $1.8240.

U.S. factory orders rose 0.7 percent in June, compared with a revised 0.4 percent gain in May initially reported as a 0.3 percent fall. Markets had expected an increase of 0.5 percent.

Analysts said the U.S. data gave the impression that the world's largest economy is still in good shape, although higher oil prices could dampen the global outlook and eventually hurt the United States, a huge oil importer.

So far, the yen has suffered the brunt of soaring crude costs despite robust Japanese economic numbers. The yen suffered broad-based losses on Wednesday as record high oil prices dimmed the outlook for Japan's recovery and encouraged investors to pull out of Asian stock markets.

Tokyo's benchmark Nikkei stock index tumbled to its lowest in over two months as U.S. light crude touched $44.28 a barrel, the highest price since oil futures were launched on the New York Mercantile Exchange in 1983.





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