By Don Curren
A DOW JONES NEWSWIRES COLUMN
TORONTO (Dow Jones)--The beleaguered dollar will likely continue its broad decline next week, but could get a temporary reprieve as the euro's advance slows and markets look toward central bank officials around the world for guidance.
The dollar's downtrend appears well entrenched at the moment, but a number of developments--from worries about central banks' rate stance to a hefty slate of data--could call it into question, creating an uncertain and volatile environment in foreign exchange.
"I think what's happening now is it's very hard to get a clear grasp at what's happening in the market," said Greg Salvaggio, vice president for capital markets at Tempus Consulting Inc. in Washington, D.C.
"One day there's euphoria about rates going higher, the next day everybody's saying it's not that good," he added.
The euro is expected to stay firm in the coming weeks, but the unsettled atmosphere is keeping forecasters from calling for a rapid appreciation over the rest of the year. Its break above $1.50 Wednesday had some forecasters re-evaluating their forecasts for its year end levels, which were at $1.48 on a median basis, according to a Dow Jones survey in early October.
Omer Esiner, senior currency market analyst at Travelex Global Business Payments, had pegged the euro's year-end value at $1.41 at that time, but is now looking for something in the $1.4250 to $1.4300 area.
"I'm still looking for the dollar to gain some traction into the end of the year," he said.
Others see the euro's break of the $1.5000 mark as something of a watershed, particularly for policy makers in the euro zone.
"It's going to be followed, undoubtedly, by complaints on behalf of the ECB and government officials because the economic recovery in Europe is at its beginning stage and it's still very much dependent on external demand," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.
The euro is seen ranging between roughly $1.4850 to $1.5150. The dollar is seen moving between Y90.50 and Y93.50 next week.
Friday afternoon in New York, the euro was at $1.5007, from $1.5031 late Thursday, according to EBS via CQG. The dollar was at Y92.10 from Y91.28, while the euro was at Y138.20 from Y137.20. The pound was at $1.6313 from $1.6620, while the dollar was at CHF1.0089 from CHF1.0047.
The Dollar Index, a trade-weighted basket of six currencies, was at 75.449 from 75.072 late Thursday.
The concerns of euro zone officials might be somewhat misplaced, as currency strength is unlikely to seriously impede recovery, but rhetoric is likely to prove forthcoming, anyway, Woolfolk said. "Expect some jawboning, but what I think this week showed is that the stock market is going to head higher, and the dollar is going to head lower," he said.
Official concern with local currency strength is likely to be a factor in other countries, as well. The Canadian dollar lost ground this week after the Bank of Canada made its strongest statement yet of concern about the currency. Bank of Canada Governor Mark Carney is scheduled to speak in Montreal Monday and make appearances before Parliamentary committees on Tuesday and Wednesday.
Market players will be listening to central bankers for more than just their ruminations about currency levels. They are also looking for guidance on interest rates as conjecture intensifies that the U.S. Federal Reserve could soon signal an end to its current policy of exceptionally stimulative policy.
"Central bankers right now are the key driver in terms of currency markets," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.
The Fed's next policy-setting meeting starts Nov. 3 and lasts two days.
Some analysts said economic data releases in the U.S. and elsewhere will be closely watched for any indications the global recovery is faltering after the U.K. reported on Friday that gross domestic product contracted by 0.4% in the third quarter.
Major data releases in the U.S. include the Conference Board's consumer confidence index for October on Tuesday, durable goods and new home sales data for September on Wednesday, the first estimate of gross domestic product data for the third quarter on Thursday, and personal income and spending data for September on Friday.
Equity markets will also continue to exert a key influence on the major currencies, with stock market strength supporting further gains in the euro.
-By Don Curren, Dow Jones Newswires; 416-306-2020; don.curren@dowjones.com
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