LONDON, (Reuters):
THE DOLLAR showed signs of flagging on Monday after a week-long rally lifted it more than five cents from December's record low against the euro.
The greenback hit multi-week highs against other major currencies on Friday as a call for a strong dollar from U.S. Treasury Secretary John Snow allowed the currency to extend gains made after hawkish comments earlier in the week from the Federal Reserve.
But it drifted lower in Europe as traders sensed the dollar's rebound had been too swift and grew nervous that forthcoming U.S. trade data could turn attention back to the United States' deficits.
"The dollar has traded softer today but it's too early to judge direction," said Shahab Jalinoos, senior currency strategist at ABN AMRO. "The best litmus test for dollar sentiment will come with the U.S. trade numbers later this week."
The U.S. November trade balance is due on Wednesday and is forecast to show a deficit just slightly below the record US$55.46 billion shortfall recorded in October.
The currency market showed little immediate reaction to comments from European Central Bank President and G10 Chairman Jean-Claude Trichet welcoming the United States' promise to tackle its budget deficit.
DEFICIT ISSUES
The United States' trade and budget deficits have been a key factor behind the dollar's three-year decline. Many economists believe the greenback still has further to fall to correct these imbalances. Since the start of this year, however, the dollar has gained over three per cent against the euro and around two per cent against the yen.
Helping it heighten were unexpectedly hawkish minutes from the Federal Reserve's latest policy meeting and Friday's call
for a strong dollar from U.S. Treasury Secretary Snow.
