Dollar Trades at Lowest Level Since August 2008 on Risk Demand

Dollar Trades at Lowest Level Since August 2008 on Risk Demand


Oct. 9 (Bloomberg) -- The dollar may extend its decline after trading at its lowest level in almost 14 months against the currencies of six major U.S. trading partners as signs of global economic recovery spur demand for riskier assets.

The euro strengthened versus the dollar after European Central Bank President Jean-Claude Trichet said yesterday the region’s economy is emerging from a period of “free fall.” The rand posted the best performance against the greenback among 10 European, Middle Eastern and African currencies as investors sold dollar assets to earn higher yields.

“We’re setting ourselves up for a sharp burst of dollar selling,” said Andrew Chaveriat, a technical analyst at BNP Paribas SA in New York. “The dollar’s had a pretty orderly decline, and the risk is that people come in and sell off the dollar.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was at 75.903 at 6:05 a.m. in Tokyo, after falling yesterday as much as 1 percent to 75.767, the weakest level since August 2008.

Trichet signaled the ECB will keep interest rates at a record low to spur growth as the euro’s 6 percent rally this year against the dollar threatens to undermine the recovery from Europe’s worst recession since World War II.

“The current rates remain appropriate,” Trichet said at a press conference in Venice after policy makers left the main refinancing rate at 1 percent. “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” he said, reiterating the Group of Seven’s statement on currencies.

Dollar Versus Euro

The dollar depreciated 0.6 percent to $1.4782 per euro yesterday, from $1.4691 a day earlier. It earlier reached $1.4818, within a half-cent of $1.4844, a level touched on Sept. 23 and the weakest since September 2008. The euro rose 0.5 percent to 130.76 yen, from 130.18. The dollar slid 0.2 percent to 88.46 yen, from 88.61.

The greenback extended its decline even as policy makers called over the past week for strength in the world’s main reserve currency.

Treasury Secretary Timothy Geithner said on Oct. 3 after a meeting of G-7 financial officials that “it is very important to the United States that we continue to have a strong dollar.” Trichet echoed Geithner at yesterday’s press conference, saying it’s “very important” for the U.S. to support the dollar.

‘Code Phrase’

“Since the dollar has been weak and weakening for years, Geithner was using a code phrase, a carryover from the Bush administration,” said David Malpass, president of the research firm Encima Global in New York. “It means that the U.S. approves of a constantly weakening dollar but doesn’t want a disruptive collapse,” said Malpass, former chief economist at Bear Stearns Cos. and deputy assistant Treasury secretary from 1986 to 1989.

Central banks in Thailand and Russia stepped in yesterday to support the dollar at the expense of their own currencies.

Assistant Governor Suchada Kirakul at the Bank of Thailand told reporters policy makers intervened after the baht appreciated “too fast.” The dollar fell 0.4 percent to 33.31 baht this month.

Bank Rossii, Russia’s central bank, bought more than $700 million as the ruble strengthened beyond 36 against the bank’s target dollar-euro basket, said Sergey Romanchuk, head of foreign-currency and money markets at OAO AKB Metalinvest Bank, citing trading flows. The regulator bought about $1 billion, said Roman Pakhomenko, chief dealer at Lanta Bank in Moscow.

Rand Carry Gains

The dollar slid 1.4 percent to 7.3310 South African rand and 0.9 percent to 13.2518 Mexican pesos on speculation investors increased trades in which they sell the currency of a nation with low borrowing costs and buy assets where returns are higher. The U.S. target rate of zero to 0.25 percent compares with 7 percent in South Africa and 4.5 percent in Mexico.

The Standard & Poor’s 500 Index increased 0.8 percent as the U.S. Labor Department said yesterday in Washington that Americans filing first-time claims for unemployment benefits decreased in the week ended Oct. 3 to 521,000, a 10-month low.

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