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Monday, October 20, 2003

This story was sent to you by shelly@cybersol.com with these comments:

Hypocrites??

>From CBS.MarketWatch.com, online at:

http://cbs.marketwatch.com/news/story.asp?siteid=mktw&dist=nwham&guid=%7BF14BC189%2D34F0%2D46B0%2DB18D%2DB3AB6CAC3275%7D

DOLLAR HOLDS SHARP GAIN VS. YEN

10/20/2003 4:26:00 PM

By Rachel Koning

4:26 PM ET Oct 20, 2003

CHICAGO (CBS.MW) - The dollar remained sharply higher against the yen, but had
stabilized in U.S. dealings Monday, after Treasury Secretary John Snow said that U.S.
interest rates are set to rise and are even welcomed, while the Bush administration
had never intended to talk down the greenback.

The dollar made its initially move of more than 1 percent against the yen during
Asian hours and hardly barely moved during U.S. trading, with some analysts still
expecting more downside correction for a relatively strong greenback given a gaping
U.S. current account deficit.

The dollar was recently up 0.9 percent against the yen at 110.28 yen. The dollar
last week was at three-year yen lows below 109 yen.

U.S. stocks were mixed earlier Monday but ended the session near the day's peaks,
which also supported dollar buying. See Market Snapshot.

The U.S. currency gained after markets learned Snow told a London newspaper many had
misread the Group of Seven position calling for flexible exchange rates as a Bush
administration endorsement of a weaker dollar. He said the policy statement was
important because it meant all seven members were in agreement domestic growth should
determine exchange rates.

But some analysts, including Chuck Butler, president of Everbank World Markets in
St. Louis, still maintain that the administration is comfortable with a marginally
weaker dollar because of its aid to manufacturing as the recovery finds it legs, only
officials are hesitant to say so publicly.

The U.S. is critical of currency market intervention, which Japan has carried out by
spending record amounts this year.

In an interview with The Times of London, Snow said that Washington would welcome
higher interest rates, as it would underline the strength of the country's growth
prospects. Read the Times report.

Given the U.S. economy's newfound strength, Snow said he would be "frustrated and
concerned" if there were not some upward movement in rates, the report said.

Analysts at ABN Amro said Snow is likely talking about longer-term interest rates,
as dictated by Treasury securities. Most economists think the Federal Reserve is on
hold for several more months considering slack capacity, low inflation and tepid job
creation, although if stronger data continue to roll in, the economists may begin
moving forward central bank forecasts for a policy reaction.

"The Secretary respects the independence of the Federal Reserve in making decisions
about our nation's monetary policy," Treasury spokesman Rob Nichols said later
Monday. "The Secretary was pointing out that when economies begin picking up steam,
there is an increased demand for money which naturally pushes interest rates higher."

Snow also said he expects the U.S. economy to grow around 4 percent this year -- a
rate that will "produce loads of jobs."

U.S. growth could top 6 percent for the third quarter, nearly double the 3.3 percent
recorded in the second quarter and far ahead of the first quarter's 1.4 percent, a
CBS MarketWatch poll shows. Read Economic Preview.

The government's first estimate of third-quarter gross domestic product will be
released on Oct. 30.

The greenback also rose against its European counterparts. The euro was recently
down 0.4 percent at $1.1632. Sterling fell 0.4 percent at $1.6712. The dollar gained
0.4 percent vs. the Swiss franc at 1.3326 francs.

The ABN Amro analysts said the euro came back modestly against the dollar after
comments from the European Central Bank's Liebscher that keeping euro-dollar
artificially low is not a desirable policy.

On the U.S. economic front, the index of leading economic indicators fell 0.2
percent in September after four months of gains, the Conference Board said Monday. A
large contraction in the money supply led the decline, prompting economists at the
Conference Board to suggest the reading didn't mean the U.S. recovery was off track.

U.S., China to study yuan

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Separately, U.S. President George Bush and Chinese President Hu Jintao have agreed
at the APEC summit in Bangkok to form a joint study group to look into the
possibility of floating the yuan, Kyodo reported, citing an unnamed U.S. government
official.

The yuan has been fixed at around 8.3 to the dollar for a decade.

U.S. politicians have been putting pressure on the administration to seek a
revaluation of the yuan amid fears that Americans are losing manufacturing jobs due
to the undervalued Chinese currency.

Despite the report of a joint study group, dealers are started to think that any
yuan revaluation won't occur any time soon after China's central bank governor Zhou
Xiaochuan told Xinhua that changing the currency's fixed exchange rate with the
dollar will take a "relatively long time."

Bloomberg said that Chinese yuan forward contracts had weakened with the gap between
the one-year implied rate and the pegged rate narrowing due to growing expectations
that there won't be a change anytime soon.

posted by FLoA # 10/20/2003 05:07:58 PM

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