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Currencies

By Anne D. Picker, International Economist, Econoday     Monday, March 18, 2002

Currencies
Unlike the usual pattern, it seems as though every other currency but the dollar benefited from positive U.S. economic indicators last week. The euro climbed for a fifth week in six against the dollar, touching its highest level since late January as evidence mounted that Europe's economy is rebounding with the help of the U.S. turnaround. The euro rose 0.9 percent against the dollar this week and 1.3 percent versus the yen. Helping bolster the euro were favorable industrial production readings in Italy and France. But Friday's reports of stronger-than-expected U.S. consumer confidence and industrial production held back the euro as investors flocked to U.S. securities. With the FOMC meeting set for Tuesday, investors are studying the tea leaves for clues on how quickly the Fed will raise interest rates in coming months.

The dollar/yen cooled its jets last week after the yen's breathless climb against the dollar and euro in the previous week. The yen's leap was attributable to the jump in Japanese equities. Part of the cool down could be attributed to Tuesday's FOMC meeting. Many economists expect policy makers to adopt a neutral stance on whether economic weakness or price inflation is the bigger threat to the economy, after saying for the past 15 months that weakness has been the danger. Now some analysts forecast that the dollar could weaken if the Fed reverses course and adopts a speedier pace of rate increases than central banks of other economies.

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