Revitalised dollar wipes out some euro gains

A revitalised dollar clawed back more of last week's losses against the euro yesterday, as US markets emerged strongly from a relatively quiet independence Day holiday.

A combination of bottom-fishing and relief about the relatively safe passing of Fourth of July celebrations helped to carry the US currency to a high of $0.971 against the euro in early trading, with rates settling back to $0.974 before markets closed.

Reassurance on the dollar's future prospects was, meanwhile, provided by reports that International Monetary Fund (IMF) managing director Mr Horst Koehler would consider seeking international coordination of exchange rates if currency-market jitters led to a run on the dollar in the future.

Commentators were also suggesting yesterday that negative corporate news in Europe could offer a boost to the dollar's performance in the short term.

"The Vivendi scandal shows that it's not only US companies that are having problems - it's European ones as well," said Mr Alan McQuaid, chief economist with Bloxham.

Mr McQuaid believes that a new spurt of bad news from the European corporate sector could see previously reluctant investors put their money back into US assets, thus offering much-needed support to the dollar.

Despite the current surge however, the consensus view among market observers remains negative about the US currency's medium-term prospects.

Mr McQuaid believes that a lack of domestic support for a strong dollar could eventually work to the benefit of the euro, with US policymakers seemingly content to see the dollar slide. "They might just let it go," he said.

As for IMF intervention, Mr McQuaid is sceptical of the willingness of the US authorities to cooperate with such a move. "I think the Americans will suit themselves," he said.

Davy Stockbrokers head of research Mr Robbie Kelleher was also maintaining his pessimistic view about the dollar's prospects over the coming year, but acknowledged that a short-term rally was probably on the cards.

"The dollar is going to weaken but I wouldn't be surprised to see it strong over the next couple of weeks," he said.