Dollar soars against euro
Greenback rallies on anticipation of European interest rate cuts and Obama's stimulus plan.
NEW YORK (CNNMoney.com) -- The dollar rallied against the euro Monday ahead of an anticipated interest rate cut by the European Central Bank.
The greenback also received a boost as details began to emerge about President-elect Barack Obama's plans for a massive U.S. fiscal stimulus plan.
At 2:17 p.m. ET, the dollar was up 2.13% against the 15-nation euro, which was trading at $1.3610. That's the lowest since Dec. 16, when the euro stood at $1.3630.
The greenback also rallied agains the Japanese yen, gaining 1.52% to ¥93.335.
That's in sharp contrast from recent weeks, when the dollar declined against a basket of currencies amid bleak economic reports and a dim outlook for the start of 2009.
"Today is the first real trading day of the year," said Brian Dolan, chief currency strategist at Forex.com. "Investors are looking to see the money come back to work. ...There will be a fair amount of back and forth before there's a distinguishable trend."
Helping lead the dollar's rally was Sunday's announcement by the vice president of the European Central Bank that further interest-rate cuts may be necessary. Italy and Spain have reported poor inflation levels, and the German chancellor announced Sunday that she is in favor of tax cuts being included in a second fiscal stimulus package worth up to €50 billion.
"The biggest fear among market participants and central bankers is prospect of deflation," Dolan said, "If real prices start to decline, that's a huge worry."
Obama, who takes office on Jan. 20, is meeting with Congressional leaders Monday, seeking approval on a massive stimulus plan that includes $300 billion in tax cuts for businesses and middle-class taxpayers.
Dolan said he was skeptical that the dollar would retain its recent gains, though he predicted the euro will trade between $1.35 and $1.38 "for a while." He cited Friday's upcoming jobs report as an example of weak economic data that will punish the greenback.
"It's hard to get bullish on the dollar going into reports that are predicted to be negative," Dolan said. "But if the dollar maintains strength despite that, the dollar rally may continue."
The greenback is still considered a safe haven, Dolan said. "When markets froze up in September, the dollar surged."
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