Currencies
The euro climbed above its 1999 launch levels on Friday as the dollar tumbled on a combination of rising risk aversion on fresh terrorist fears and thin markets ahead of the long weekend in both the U.S. and Britain. The dollar declined as low as $1.1809 per euro in early Friday European trading. The euro's sudden move higher surprised traders, who said its speed was exacerbated by stop-loss selling (automated orders triggered when a currency pair reaches a particular level). Some of the dollar selling was attributed to market jitters because of the potential for a terrorist attack after extra security measures were announced in the U.S. and Britain. Others see this as a continuation of market speculation over a possible Federal Reserve rate cut in June, which would be a definite negative for the dollar. Lower interest rates would make U.S. investments less attractive.

Steadily gaining ground against the U.S. dollar, the euro has dramatically picked up its pace in recent months and last week briefly touched its launch value. The U.S.'s ballooning current account deficit and sluggish economy have created the conditions for a weakening currency. At the same time, a strong dollar is not thought to be a top priority for U.S. Treasury Secretary John Snow. The dollar has dropped as low yields make it harder for the U.S. to attract enough foreign capital to offset its current account deficit. The European Central Bank's key interest rate is 2.5 percent - double that of the U.S. Federal Reserve.

The yen traded within a tight range as traders were cowered by the threat of Bank of Japan intervention. It is suspected that the Bank of Japan, rather than using direct intervention, has been covertly depressing the value of the yen. The rising yen is hurting major exporters in Japan and those companies that do business abroad. Higher priced merchandise cuts demand while repatriated profits are reduced, thanks to the inflated yen.

Gold rides again!
Generally, as the dollar sinks, gold prices rise. And the recent past is no exception. Gold climbed hitting a high above $370 an ounce due in part to recent bombings in the Middle East. But along with safe-haven buying, investment buying has also been strong. Gold is trading near 3½ month highs, as investors piled into the commodity to counter the gloomy economic outlook and dollar weakness. Continued concerns over the health of the U.S. economy are likely to keep gold firm over the coming weeks.

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