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(March 14, 2002) CURRENCIES: Non-committal trade for the Euro and the greenback, while the yen and the Canada took a solid drubbing. More downside for these two cannot be counted out at this time. Euro/dollar trade was quiet due to the impending meeting by the EU.

"High levels of tax and the protected labor market in Europe make it hard for investors like manufacturers to invest." Akira Imai, President and CEO of Toyota Motor Europe. That 's hard to argue with, and underscores the problems that will be facing EU leaders when they meet this Friday and Saturday to discuss implementing reforms...in an election year. International investors see the EU as coming up short on the productivity issue, a subject I have repeatedly brought up.

I myself see few reasons to suspect a change in European attitudes, so for the most part I have been a Euro bear. However, I view the recent move by the U.S. to protect its steel industry as a potential dose of cold water for international investors. The U.S. has been beating the drum over free trade and open markets for some time now. I suspect that the international investor is now questioning the U.S. adherence to that point. And that may make the EU a little more inviting in comparison, especially if it is seen as a bargain.

Some traders see the recent break in U.S. bonds as attracting foreign investment capital, adding further support to the Greenback. We'll see on that score. I suspect dollar upside is limited at this point. If the U.S. economy is on the mend, it implies the global economy is not far behind. This in turn supports international capital leaving its safe haven in the U.S. to look for opportunities elsewhere. The decline in bonds, while not totally due to this reason, also indicates that "flight to quality" buyers are moving out of U.S. assets.

M. Steven Morgan

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