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Dollar index falls to lowest level in 35 years
Source: BI-ME and Bloomberg , Author: BI-ME staff
Posted: Mon March 3, 2008 12:00 am

INTERNATIONAL. The index measuring the dollar against the currencies of six major trading partners fell to a record low today. The US Dollar Index traded on ICE Futures in New York slid to 73.44, the lowest since the gauge started in 1973.

The Institute for Supply Management will say its manufacturing index declined to 48.0 in February from 50.7 in January, indicating a contraction, according to a Bloomberg News survey.

The dollar dropped to a record low of CHF 1.0309 today, before trading at 1.0402, from 1.0412 on 29 February 29. It also fell to C$0.9847 from C$0.9878.

The US currency slipped versus Norway's Krone, which some traders are buying as a refuge from mounting losses in the credit markets. Norway's currency is trading at its strongest level in a generation. The dollar decreased 0.1% to 5.2097 Kroner.

Futures traders increased their bets that the Euro will gain against the US Dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by large speculators on a Euro advance compared with those on a decline, so-called net longs, was 31,778 on 26 February, compared with 14,730 a week earlier.

The US Dollar touched as weak as US$1.5275 per Euro, from US$1.5179 on 29 February, before recovering to trade at US$1.5179 at 11.39am in New York.

The Euro may extend its rally to as high as US$1.57, based on charts that predict price movements, wrote Kevin Edgeley, a technical analyst at Goldman Sachs Group in London.

The currency's gain against the dollar last week through so- called resistance between US$1.4955 to US$1.4965 and above the US$1.50 "psychological'' level sets up a "target'' from US$1.5620 to US$1.57, Edgeley wrote in a research report dated yesterday.

The dollar declined to a three-year low against the yen on speculation banks will report more losses from the collapse of the US subprime-mortgage market.

"The dollar is in a clear free-fall, down versus every major and emerging-market currency," Jan Loeys, head of global- market strategy at JPMorgan Chase & Co in London, wrote in a note to clients. "The rate story is the dollar's Achille's heel."

The US currency tumbled 2.3% against the Euro in February, its biggest monthly decline since September. The synthetic Euro, which estimates the European currency's value before 1999, rose to the strongest level since at least January 1989, when Bloomberg's data on the measure began.

The US Dollar also fell before speeches by Federal Reserve policy makers today. Fed Chairman Ben Bernanke said last week the currency's drop was helping cut the trade deficit.

"Fed officials are likely to reiterate Bernanke's dovish comments," said Greg Gibbs, a strategist at ABN Amro Holding in Sydney. "These events pose downside risks for the dollar.''

Traders raised bets that Fed will lower the key interest rate three quarters of a percentage point at its 18 March meeting. Fed fund futures contracts on the Chicago Board of Trade show 72% odds the Fed will cut 75 basis points to 2.25%. A week ago, the odds were 2%.

US policy makers have lowered the target rate 2.25 percentage points since September, while the European Central Bank has kept its benchmark at a six-year high of 4% as inflation accelerated.

A report today showed inflation in Europe last month held at the highest level since the Euro's debut.

The US currency recovered in late European trading after European Central Bank President Jean-Claude Trichet said the US government's strong-dollar policy is "very important."

"The comments may reflect a growing recognition that the strong Euro is starting to catch the eye of the ECB," said Win Thin, a currency strategist with Brown Brothers Harriman & Co in New York.

The Euro has gained 15% against the US Dollar over the past year, eroding the competitiveness of European exports.

The UAE, Saudi Arabia, Bahrain, Qatar and Oman are under pressure to revalue or loosen their exchange rates as the dollar tumbles to record lows, making imports more expensive.

Cuts to US benchmark borrowing rates since September, force Arabian Gulf states to follow suit, and spur inflation which is already at a record in the UAE, Qatar and Saudi Arabia.

 

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