CURRENCIES
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Your support makes all the difference.Peter von Maydell, a dollar bull in the first quarter of 1997, is finding it hard to be as optimistic about the US currency's prospects in the second quarter.
Von Maydell's track record isn't bad. Of the 66 market watchers polled by Bloomberg at the start of 1997, the UBS analyst best predicted the dollar's course during the first three months of the year.
He came closest in predicting the dollar's 8.15 per cent climb against the mark, and tied for third in forecasting it would also rise against the yen.
Von Maydell's secret? He bet that many of the influences that drove the dollar higher in the fourth quarter of 1996 would persist in the first quarter of 1997. But looking forward, he isn't sure where the US currency is headed.
"The first quarter was easier to call than the second because there was a clear swing in all the data that hadn't been anticipated," Von Maydell said. "But now, everyone and their dog is bullish about the US and the yield differentials (between the US and Germany) are being eroded." That's made him less confident that the dollar can build on its gains in the months ahead.
And weighing on the dollar in the months ahead? There are expectations that nascent economic pickups in Germany and elsewhere may become full- blown recoveries - leading to interest rate increases in these countries.
That's also expected to take a toll on the pound, a key beneficiary of investors' search for higher returns in the first quarter.
Sterling closed 4.12 per cent higher on the quarter against the mark, though it fell 3.71 per cent against the dollar.
Analysts at Merrill Lynch, who came second in the currency poll, are among those who predict sterling's heyday is over. Copyright: IOS & Bloomberg
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