Markets rocked by sharp slide in dollar
Markets rocked by sharp slide in dollar
By Neil Dennis and Chris Giles in London and Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2006
Published: November 24 2006 20:08 | Last updated: November 24 2006 20:08
A sharpening slide in the US dollar unnerved global markets on Friday as investors sought to protect themselves from the possibility of sustained dollar weakness.
As US markets were closing on Friday , the euro stood at a 19-month high of $1.309, up 1.2 per cent, while sterling gained 0.9 per cent to a 1½-year peak of $1.9333. The yen climbed 0.5 per cent to ¥115.66.
European and Asian stock markets suffered the fallout from the dollar’s decline with exporters to the US the worst performing stocks in all regions. But on commodity markets, dollar-denominated prices tracked higher as gold, copper and oil became cheaper in other currencies.
The euro’s strength could put the European Central Bank under fresh political pressure not to raise interest rates again after the expected quarter percentage point rise to 3.5 per cent on December 7.
The dollar has now fallen this year by more than 10 per cent against the euro and 12 per cent against sterling. Some economists suggest the greenback has further to slide given a weak economic outlook in the US, and the prospect of interest rate cuts there next year.
Steve Saywell, currencies analyst at Citigroup, said: “While the economic data remain soft, the dollar will continue to fall.”
The gaping US trade deficit, the near certainty of a December rise in eurozone interest rates, rising expectations of a cut in US rates in the spring and wariness about borrowing in yen to finance investments in the US all continued to weigh on the dollar, analysts said.
These concerns were heightened by comments from Wu Xiaoling, deputy governor of the People’s Bank of China, indicating her unease at the rapid build-up of $1,000bn of reserves in China. She said Asian foreign exchange reserves were at risk from the dollar’s fall, although she stopped short of indicating that China was about to stop adding to its pile of reserves.
“The dollar is coming under real pressure and this looks like the beginning of a sustained move,” said Ian Stannard, strategist at BNP Paribas.
Equities markets in Europe and Asia fell sharply. Tokyo’s Nikkei 225 fell 1.1 per cent to 15,734.6, while the FTSE Eurofirst 300 shed 0.8 per cent to 1,451.05.
Commodities tracked higher, with gold climbing 1.2 per cent to $638.50 a troy ounce, while copper added 2.5 per cent to $7,155 a tonne. Nymex crude gained 1.1 per cent to $59.90.
By Neil Dennis and Chris Giles in London and Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2006
Published: November 24 2006 20:08 | Last updated: November 24 2006 20:08
A sharpening slide in the US dollar unnerved global markets on Friday as investors sought to protect themselves from the possibility of sustained dollar weakness.
As US markets were closing on Friday , the euro stood at a 19-month high of $1.309, up 1.2 per cent, while sterling gained 0.9 per cent to a 1½-year peak of $1.9333. The yen climbed 0.5 per cent to ¥115.66.
European and Asian stock markets suffered the fallout from the dollar’s decline with exporters to the US the worst performing stocks in all regions. But on commodity markets, dollar-denominated prices tracked higher as gold, copper and oil became cheaper in other currencies.
The euro’s strength could put the European Central Bank under fresh political pressure not to raise interest rates again after the expected quarter percentage point rise to 3.5 per cent on December 7.
The dollar has now fallen this year by more than 10 per cent against the euro and 12 per cent against sterling. Some economists suggest the greenback has further to slide given a weak economic outlook in the US, and the prospect of interest rate cuts there next year.
Steve Saywell, currencies analyst at Citigroup, said: “While the economic data remain soft, the dollar will continue to fall.”
The gaping US trade deficit, the near certainty of a December rise in eurozone interest rates, rising expectations of a cut in US rates in the spring and wariness about borrowing in yen to finance investments in the US all continued to weigh on the dollar, analysts said.
These concerns were heightened by comments from Wu Xiaoling, deputy governor of the People’s Bank of China, indicating her unease at the rapid build-up of $1,000bn of reserves in China. She said Asian foreign exchange reserves were at risk from the dollar’s fall, although she stopped short of indicating that China was about to stop adding to its pile of reserves.
“The dollar is coming under real pressure and this looks like the beginning of a sustained move,” said Ian Stannard, strategist at BNP Paribas.
Equities markets in Europe and Asia fell sharply. Tokyo’s Nikkei 225 fell 1.1 per cent to 15,734.6, while the FTSE Eurofirst 300 shed 0.8 per cent to 1,451.05.
Commodities tracked higher, with gold climbing 1.2 per cent to $638.50 a troy ounce, while copper added 2.5 per cent to $7,155 a tonne. Nymex crude gained 1.1 per cent to $59.90.
posted by Carlos T Mock @ 8:30 AM
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