Dollar Drops Again Against Euro to Another New Low

Dec. 15, 2003
By Manuela Badawy

NEW YORK (Reuters) - The dollar retested record lows against the euro on Monday after trimming gains made on the initial excitement over the capture of former Iraqi President Saddam Hussein at the weekend.

"The euro picked back up. The Saddam news affected overnight trade but the U.S. trading session has been underweight," said Tim Mazanec, senior foreign exchange strategist at Investors Bank and Trust Company.

"The trend of dollar weakness/euro strength is once again picking up and the geopolitical news is having limited effect in U.S. trade," Mazanec said.

The euro was slightly softer near $1.2287 against the dollar, off its record high above $1.23 reached on Friday.

The Treasury Department said on Monday foreigners' net purchases of U.S. financial securities rose to $27.65 billion in October from $4.19 billion in September.

However, analysts said overall inflows were below what is needed to fund the U.S. current account deficit.

Last month's numbers, showing foreigners turned a cold shoulder to U.S. assets in September, sent the dollar reeling.

Concerns over the sustainability of the current account gap mean flows in and out of U.S. assets are a key focus of currency traders. So far, a recovering economy has done little to help the United States fund its widening current account deficit. The dollar has lost over 18 cents against the euro this year and nine cents in about five weeks.

"The capital flows had a temporary effect but the euro looks like it's coming back and so is the yen. The long-run fundamental story has not changed. The dollar is still in a declining trend and people think this is an opportunity to get into a short-dollar position," said Michael Rosenberg, Managing Director and Global head of foreign exchange research at Deutsche Bank Securities in New York.

The dollar stood at 107.79 yen , slightly firmer than in late Friday New York trade, according to Reuters data.

The dollar was up 0.18 percent against the Swiss franc at 1.2637 francs .

The dollar had gained more than a cent on Monday from last week's record low against the euro, after news of Saturday's capture of Saddam.

"Saddam Hussein's capture did not change the dollar bears' perception that the growing U.S. current account deficit, combined with expectations that the Fed would keep rates on hold at very low levels in the first half, would continue to weigh on the dollar," said Margaret Browne, currency strategist at HSBC.

Last week the Fed left interest rates unchanged at a 45-year low of 1 percent and signaled they would not raise them any time soon. This compares to rates in the euro zone of 2 percent, 3.75 percent in the UK and 5.25 percent in Australia.

The greenback softened further after the New York Fed's Empire State survey of business conditions eased to 37.4 in December, still a strong number but lower than the revised record high of 40.1 seen in November.

Japan's top financial diplomat, Zembei Mizoguchi, said on Monday that Saddam's capture would help reduce global security risks and encourage investors to focus on "strong" U.S. economic fundamentals. (Additional reporting by Burton Frierson in London)

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