The dollar sank on Monday, hitting a record low versus the euro and other currencies after traders took a tumble in US stocks and the apparent indifference of Group of Seven finance officials to recent dollar weakness as a cue to dump the US currency.
Weakness in US stocks on Friday, when the Dow Jones industrial average and the Standard & Poor's 500 posted their worst daily percentage drops in two months, also pushed the dollar to a record low against a basket of currencies.
Tokyo traders on Monday picked up where dollar selling left off on Friday. At the same time, struggling equities discouraged demand for risky assets, boosting the yen as they triggered more unwinding in trades to sell the yen for high-yielding currencies.
The euro climbed to $1.4349 on electronic trading platform EBS after G7 officials ended a weekend meeting without offering verbal support for the beleaguered US currency, as expected, although they did urge China to speed up appreciation of the yuan.
The dollar fell more than 1 percent to 113.25 yen, hitting a six-week low, before pulling back to around 113.75 yen.
RISK AVERSION
The Japanese currency was bolstered by a 3.0 percent fall in the Nikkei stocks average, which along with other Asian equity markets followed US stocks lower.
"Stocks are down and volatility has shot up, so putting on yen carry trades is out of the question," said Seiichiro Muta, forex director at UBS Securities in Tokyo.
But the yen retreated from the day's highs, with some traders saying they had already factored in a sizable drop in the Nikkei, and that additional yen gains in Tokyo trade were unlikely barring a significant extension in Asian stock losses.
Market participants expect the dollar to stay weak on the growing view that the Federal Reserve may cut interest rates this month, as weak earnings among many US banks and corporations and a suffering housing market point to an economic slowdown.
Traders are bracing for US data on new and existing homes to be released later in the week, and some said that weak readings may push the dollar lower this week.
But they added that yen gains may be limited, as Japanese investors, particularly institutional players, were expected to step in to sell the yen to buy foreign assets as part of their investment plans for the second half of the financial year.
Japanese importers were also seen keen to sell the yen as it appreciates.
The yen may become vulnerable to selling in the near term, as some traders said that a Fed rate cut this month would likely boost equities, just as its decision to slash its fed funds rate by 50 basis points last month triggered a surge in US stocks, which may reheat demand for yen carry trades.
Japenese Stocks hit 4 weeks low and Nikkei was trading down 540 points
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Sunday, October 21, 2007
Dollar hits record low vs euro, yen up on risk unwind
Monday, October 15, 2007
Oil Trades Above $86 After Rising on Turkey-Iraq Border Tension
Crude oil traded above $86 a barrel after rising to a record yesterday on concern oil shipments may be disrupted if Turkish forces pursue Kurdish militants in Iraq.
Prices climbed as much as 3 percent yesterday after Turkish Prime Minister Recep Tayyip Erdogan formally asked lawmakers to sanction military action against rebels based in Iraq, holder of the world's third-largest oil reserves. Oil also gained as the dollar fell to a two-week low against the euro and U.S. equities declined the most in two months.
``This is something that Turkey has probably wanted to do for a long time,'' said Tom Hartmann, commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``You have the weak dollar, and concerns about the U.S. economy, and that is just spilling into the buying of commodities.''
Crude oil for November delivery was at $86.35 a barrel, up 22 cents, in after-hours electronic trading on the New York Mercantile Exchange at 9:30 a.m. in Sydney.
The contract settled $2.44, or 2.9 percent higher, at $86.13 yesterday. It reached $86.71, the highest since being introduced in 1983.
Today's intraday high passed the previous all-time inflation- adjusted record reached in 1981 when Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today's dollars.
Crude-oil and other commodities also rose because the U.S. dollar declined against the euro, enhancing their appeal as an investment. The Standard & Poor's 500 Index fell 0.8 percent to 1,548.71 yesterday after Citigroup Inc., the largest U.S. bank, said loan defaults will plague the financial industry for the rest of the year.
Currency Impact
``You don't hear a lot of complaining about high prices except in the U.S.,'' Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington said yesterday. ``The rise in prices is a lot less impressive in other currencies.''
In U.S. dollars, West Texas Intermediate, the New York-traded crude-oil benchmark, is up 41 percent so far this year. Oil is up 31 percent in euros, 35 percent in British pounds and 39 percent in yen.
Oil ``is going to soon hit $90 and go north of $100 next year,'' said Peter Schiff, chief executive officer of Darien, Connecticut-based brokerage Euro Pacific Capital, with $700 million in customer accounts. ``We should see $150 to $200 oil in the next two to three years because of the drop in the dollar. Once Asian countries allow their currencies to appreciate, demand will explode there.''
Brent crude oil for November settlement rose $2.20, or 2.7 percent, to close at a record $82.75 a barrel on the London-based ICE Futures Europe exchange yesterday.
OPEC members have said a falling dollar justified higher prices because oil-producing countries sell oil in dollars and often buy goods in euros. OPEC will discuss the impact of the falling dollar when members meet on Dec. 5, Algerian Oil Minister Chakib Khelil said yesterday.
