Dollar Falls to Seven-Week Low


The dollar fell against all the major currencies as the cost of borrowing in the greenback tumbled, indicating less demand for year-end funding.

The euro broke through $1.34 for the first time in seven weeks as the U.S. trade deficit unexpectedly widened and European Central Bank council member Axel Weber signaled the bank may be nearing the end of its rate-cutting cycle. The Swiss franc slid against the euro after the central bank cut borrowing costs to a four-year low.

The dollar fell 2.4 percent to $1.3337 per euro at 3:44 p.m. in New York, from $1.3023 yesterday. It touched $1.3405, the weakest since Oct. 20. The U.S. currency dropped 1.2 percent to 91.68 yen from 92.76 and touched 91.17, the lowest since Oct. 24. The euro rose 1.1 percent to 122.12 yen from 120.78.

The euro rose above $1.3290, near the Oct. 30 high, which opens the door to at least $1.3515,” wrote Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut, in a note today.

Brazil’s real was the biggest gainer versus the dollar today among the 16 major currencies tracked by Bloomberg after the central bank held the target lending rate yesterday at a two-year high of 13.75 percent. The real gained 3.4 percent to 2.3659 versus the dollar.

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 2.1 percent to 83.72. The gauge dropped below the 55-day moving average as traders took advantage of low liquidity to test how far the index may fall, said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi Ltd. in London.

The dollar has gained 11 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to seek funding in the greenback.

Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after depleting reserves in defense of the exchange rate. Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The ruble dropped 1.9 percent to 36.93 per euro while gaining 0.4 percent to 27.71 per dollar.

The franc depreciated 1.2 percent to 1.5803 per euro as the Swiss National Bank reduced the three-month Libor target by a half-percentage point to 0.5 percent. The economy is facing a recession that may be the worst since 1982.


TradingEconomics.com, Bloomberg
12/11/2008 1:05:19 PM