Currencies track the war news (page 1 of 2)

Euro

The dollar commenced the week on a soft note against the euro on growing concerns that the U.S.- led war in Iraq could take longer than some had expected. The longer the conflict goes on, the more money the United States has to spend, pressuring an already expanding fiscal deficit and undermining the greenback.

U.S. President Bush is expected to seek nearly $75 billion for the war against Iraq. The dollar tumbled against the euro and Swiss franc, more than erasing gains notched up when news reports of massive aerial bombardments of Baghdad and of U.S. led forces advancing virtually unopposed through the Iraqi desert, heartened investors looking for a quick end to the war. In addition, drop of more than 3 percent for major U.S. stock indexes was also hurting the greenback.

Midweek, the dollar pared most of its losses amid reports of a popular uprising in the Iraqi city of Basra. News of an apparent uprising made markets believe that the United States was gaining support from Iraqi people, which could make it easier for the U.S. led forces to occupy the capital, Baghdad.

U.S. stocks meanwhile rallied, sending the blue chip Dow Jones Industrial Average up 1.4 percent, while the tech-laden Nasdaq gained more than 2 percent. On the economic front, the release of the U.S. Consumer Confidence data, which fell to 62.5 in March from a revised 65.8 in February, in line with expectations, played second fiddle to the developments in Iraq. The Conference Board's survey was taken in the days before the United States began its attack on Iraq.

Towards the last trading days of the week, the dollar weakened again paying scant attention to the flurry of gloomy U.S. economic news and focusing instead on the headlines about the war. As the war moved into its second week, Bush said the conflict was "far from over" and that the path ahead for the U.S.-led forces would not be easy and may be long.

In a joint news briefing with British Prime Minister Tony Blair, Bush also said that the Iraq war would last "however long it takes to win". The euro hit a high of $1.0801 before closing the week at $1.0770 levels. The euro showed little reaction to news western Germany's Ifo business climate index unexpectedly fell in March, to 88.1 from 88.9 in February.

Negative news for the euro also came from Germany's warnings that its budget deficit in 2003 would likely be above the 3 percent of gross domestic product limit set by the European Union's Stability and Growth pact. Traders also took notice of comments by ECB member Ernst Welteke who said bluntly that a rate move from the ECB next week was unlikely if the global situation remained unclear.

The markets also paid no attention to a mixed batch of U.S. economic data. Consumer spending was unchanged in a storm-battered February, but incomes posted a 0.3 percent advance. The University of Michigan's final March consumer sentiment index came in better than expected at 77.6, though it fell from February's reading of 79.9.

With both the United States and its main ally Britain warning that the war could drag on, traders are starting to look beyond the war trade and to market fundamentals.

Business surveys out of United States and Europe next week will be scrutinised to assess how much damage a prolonged war could have on the real economy. The ECB meeting on Thursday and US jobs report due on Friday will also be watched closely. Analysts expect the ECB to leave interest rates unchanged at 2.5 percent.

Range for the week: $ 1.0600 - $1.1100

Japanese Yen

The dollar's losses against the yen at the start of the week were moderated by speculation Japanese authorities may take further steps to boost liquidity.