From Dow Jones Newswires
The dollar is falling swiftly in European trading hours Thursday as the slow drip of nervousness over further monetary easing by the Federal Reserve turns into a flood, and the prospect of any international agreement to prop it back up fizzles out.
The buck has been under heavy pressure against other major currencies for weeks. But as London trading got underway, the move accelerated abruptly, in a move reminiscent of the euro’s darkest days in April and May this year. The dollar hit a record low against the Australian dollar, a fresh 15-year low against the yen, a fresh record low against the Swiss franc, and a significant low against the euro too.
The move lacks a specific trigger. Instead it reflects persistent concerns over the U.S. economic outlook and a growing lack of confidence among traders that international political heavy weights will come to the buck’s rescue at meetings of the Group of Seven leading industrial nations and the International Monetary Fund in the coming days. Market watchers now warn that the dollar’s slide could still have much further to run.
“There’s a sense that not everyone is in this yet,” said Daragh Maher, a senior currencies analyst at French bank Credit Agricole SA in London. “That’s why a lot of the trading community thinks this has further to go,” he said.
Central bank reserve managers have been prominent dollar sellers over recent weeks. Many are fighting strength in their own currencies by buying dollars on a huge scale, but few seem to be holding onto those freshly acquired bucks, which are instead being churned into euros, Australian dollars, and other currencies.
However, funds have been slower to pounce on the dollar’s decline, in part reflecting their reluctance to buy the euro after the single currency’s crisis earlier this year. Any fresh source of dollar selling could be bad news for the buck.
Wednesday, the already unlikely prospect of any international agreement to turn this around dimmed even further as Chinese Premier Wen Jiabao urged European leaders to back away from calls for China to push the yuan higher. Such a move could be destabilizing for the world economy, he warned.
Crucially, the U.S. appears sanguine about the export-supporting weakness in the dollar right now. “You never hear U.S. officials talking about the strong dollar policy now,” said Paul Robson, a senior currencies analyst at Royal Bank of Scotland in London.
Robson said that the eye-watering slide in the dollar is not fully justified by the U.S. economic data. But it would probably be unwise to stand in the way of the move as the risk of further quantitative easing by the Fed has become such a significant theme for traders. “It has really caught people’s imaginations,” he said.
At 0830 GMT, the euro was trading close to $1.40, while the Australian dollar was scaling new heights at over $0.99.
-By Katie Martin, Dow Jones Newswires; 44 20 7842 9346; katie.martin@dowjones.com
