Dollar Falls to Eight-Week Low


The dollar fell to an eight-week low against the euro and dropped versus the yen on speculation the Federal Reserve will cut interest rates and the U.S. will bail out General Motors Corp. and Chrysler LLC.

The greenback approached a 13-year low against the Japanese currency after U.S. President George W. Bush said yesterday he may use funds meant to shore up banks to keep the automakers out of bankruptcy. The Fed is forecast by economists to cut its benchmark rate tomorrow.

The dollar declined 0.8 percent to $1.3472 per euro at 7:34 a.m. in New York, from $1.3369 on Dec. 12, after touching an eight-week low of $1.3499. The dollar slid 0.5 percent to 90.78 yen from 91.21, after reaching 88.53 yen on Dec. 12, the weakest level since August 1995. The euro rose 0.4 percent to 122.25 yen from 121.83.

The yen advanced 62 percent against the Australian dollar and 83 percent versus the South African rand in 2008 on speculation the global recession will prompt investors to unwind carry trades, in which they get funds in a country with low borrowing costs and buy higher-yielding assets. Japan’s 0.3 percent target lending rate is the lowest among major economies.

The dollar gained 8.2 percent against the euro this year as almost $990 billion of credit-market losses sparked a seizure in money markets, encouraging investors to buy the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit.

The cost of borrowing in dollars over three months, or the London interbank offered rate, fell for a fifth day today in a sign that short-term funding pressures and dollar demand may be easing. The rate for three-month loans decreased to 1.87 percent, according to British Bankers’ Association data.

The U.S. currency weakened 5.9 percent measured by the trade-weighted Dollar Index from a two-year high on Nov. 21 after strengthening from July to November. Since peaking three weeks ago, the dollar fell against all 16 of the most widely traded currencies tracked by Bloomberg.

Japan may intervene in the currency market for the first time in five years to slow the yen’s advance against the dollar and other currencies, Nikkei English News reported Dec. 13, citing finance officials it didn’t identify. Any government move would be unilateral, said Nikkei, citing a senior finance- ministry official.

Japan last intervened on its own when it sold a record 20.4 trillion yen ($224 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar. Central banks intervene when they buy or sell currencies to influence exchange rates.


TradingEconomics.com, Bloomberg.com
12/15/2008 5:17:16 AM