Business | Banking
Dollar marks fifth day of record lows
Greenback slides to historic depths against Swiss franc and slips below the 103-yen mark.
- Reuters
- Published: 00:31 March 4, 2008
London: The dollar plumbed a record low against a basket of rival currencies for the fifth trading day in a row on Monday, weighed by concerns about US economic health, while the yen rallied on rising risk aversion.
The move saw the dollar set historic lows versus the Swiss franc, come within one tick of Friday's record trough against the euro and break below the 103-yen mark for the first time in more than three years.
Data later in the session is expected to show the manufacturing sector slipping into contraction territory in February, with the Institute for Supply Management's index seen falling to a near-four year low of 48.0.
In contrast, euro zone data showing that annual inflation remained at a record high of 3.2 per cent last month backed the argument that upwards price pressures could deter the European Central Bank from cutting interest rates in the near term.
"It's a semi-decoupling story where we have the US data looking really worse and worse, and elsewhere the data is not weak enough to cause any dollar strengthening, while inflation is keeping the European Central Bank in an (on-hold) stance on rates," said John Hardy, forex strategist at Saxo Bank.
"All the fundamentals are there for keeping the move (in the euro) going for now on this big break above $1.50," he said.
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The dollar's trade-weighted index against six major currencies dropped to 73.445, the lowest since it was created in 1973.
By 1113 GMT, the euro was steady at $1.5189, having earlier stopped one tick short of a record high of $1.5238 hit last Friday.
International Monetary Fund director general Dominique Strauss-Kahn said the euro was overvalued, while both the yen and the yuan were undervalued.
Risk aversion
The dollar fell to a record trough of 1.0308 francs and weakened more than one per cent to a three-year low of 102.62 yen, closing in on the psychological 100 yen level last breached in late 1995.
The euro also weakened against the low-yielding currencies, hitting two-week lows at 155.95 yen and 1-1/2 year troughs at 1.5700 francs. The yen and Swiss franc benefited as investors unwound some leveraged carry trades, in which funds are borrowed in those low-yielding currencies to buy higher-yielding assets.
Risk aversion rose as gold prices surged to a record high above $980 an ounce, while Asian and European equity markets sold off after losses on Wall Street on Friday. The UBS forex risk index jumped to a six week high and Calyon's risk aversion barometer moved towards recent 4-year peaks.
"Weak data releases, a spate of negative financial sector news as well as ongoing concerns about US bond insurers hit appetite for risky assets," Calyon said. Billionaire investor Warren Buffett told CNBC yesterday that the deal to take over reinsurance of $800 billion municipal bonds is no longer on the table.
There was no respite for yen gains even after Japan's prime minister Yasuo Fukuda said that rapid forex moves are undesirable and that he is watching with great interest.
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