|Betreff: Dollar decline gathers pace, shaking global markets|
|Datum: Sat, 27 Nov 2004 02:46:31 EST|
The euro shot to a new all-time peak of 1.3329 dollars in early European trading Friday, hurdling the 1.33 threshold for the first time since its launch in January 1999.
The US currency has slid to a series of record lows against the euro this week and to multi-year troughs against a range of other currencies as investors focused on the big US current account and budget deficits.
The dollar fell to a near five-year nadir against the yen, which rose to 102.15 to the dollar, the highest level since January 2000.
The dollar's decline lifted gold prices above 455 dollars an ounce for the first time in 16 years.
The latest blow to the dollar came from a report in the Shanghai-based China Business News that China had cut the size of its US Treasury bond holdings in its foreign exchange reserves.
Although the report was later denied, it fanned concerns that central banks in Asia, Russia and the Middle East would continue switching their foreign currency reserves from dollars into euros.
"With dollar sentiment so dire this will serve as another reason to continue pushing the current foreign exchange trend," said Derek Halpenny, economist at The Bank of Tokyo-Mitsubishi.
The dollar's decline cast a shadow over stock markets in Europe and Asia.
The London FTSE 100 index dropped 0.49 percent to 4,730.30 points in morning trading, the Frankfurt DAX 30 slid 0.59 percent to 4,135.86 points and the Paris CAC 40 lost 0.77 percent to 3,768.45.
In Tokyo the Nikkei-225 index lost 0.61 percent to 10,833.75 points on concerns that a stronger yen could hurt exports, the driver for the country's recovery, dealers said.
Shares fell 1.65 percent in Seoul, 1.31 percent in Taipei and 0.23 percent in Hong Kong.
Analysts noted that movements were being exacerbated by thin trading volumes, with many US participants taking an extended weekend after Thursday's Thanksgiving holiday.
Nevertheless, there were fears that the dollar's slump would have repercussions for the stability of financial markets in general.
"Foreign exchange volatility has risen over recent weeks and the risk that the dollar could move into freefall appears to be growing," said Calyon currency analyst Mitul Kotecha.
"This would result in much bigger rise in US interest rate and US Treasury yields and a massive dislocation to asset markets globally."
The euro's rise is expected to prompt calls from eurozone politicians for the European Central Bank to act to curb the currency's appreciation.
Although there appeared to be no appetite in Washington for intervention to arrest the fall of the dollar, the European Central Bank might soon make a foray single-handed on markets to buy dollars for euros, some analysts said.
"Probably the ECB has no specific target in mind, no specific level in mind, and wants to just moderate the appreciation and reduce the risk of disruption to financial markets," said Bank of America economist Lorenzo Codegno.
"The ECB is unlikely to use the tool of interest rates in the near term to try to weaken the euro. Over time however the ECB might be forced to cut rates if the situation degenerates," he added.
In Germany, the head of the Ifo economic research body Hans-Werner Sinn has urged the ECB to intervene on the foreign exchange markets.
But at HypoVereinsbank, chief economist Martin Huefner said: "There wouldn't be much point at the moment to buy dollars...The ECB simply wouldn't have a chance against the strong anti-dollar sentiment on the market at the moment. If the ECB were to intervene now, it would require astronomic sums. A few billion euros would not do the job."
And the head of economics and strategy at ING bank, Mark Cliffe, agreed that any assault would have to be "massive". He said. "If they intervene, they cannot afford to fail."
The dollar's decline was good news for gold prices, which rose to as high as 455.30 dollars on the spot market -- the highest level since June 1988.
"The prime cause has been the sizeable declines of the dollar against the euro and the yen," said Barclays Capital analyst Kamal Naqvi.