CURRENCIES: Dollar Falls To 15-month Low After G20 Meeting
By Deborah Levine
The dollar fell to the lowest level in 15 months against a basked of
currencies on Monday after a weekend meeting of Group of 20 policy makers
stressed continued economic stimulus, encouraging investors to move into riskier
assets such as stocks and away from the dollar.
Traders also took heed of an International Monetary Fund report issued at the
G20 meeting that said the dollar has moved closer to "medium-term equilibrium"
but "still remains on the strong side."
The dollar index (DXY), a measure of the greenback against a trade-weighted
basket of rival currencies, fell as low as 74.930, a level last seen since
August 2008. It recently traded at 75.042, down from 75.760 in North American
trading late Friday.
The euro pressed back above the psychologically important $1.50 level for the
first time since Oct. 26. It struggled to push much higher and recently traded
up about 1% at $1.4998, up from $1.4840 on Friday.
The single currency extended its gain after data showed German industrial
production rose 2.7% in September.
Earlier, the British pound jumped as much as 1.3% and recently bought $1.6763.
The dollar stood at 90.06 Japanese yen, from 89.88 yen on Friday.
Meeting in St. Andrews, Scotland, the finance ministers and central bankers
vowed to keep stimulus measures in place until a recovery gains a solid footing,
reducing the appeal of the relative safe-haven status of the dollar. As
expected, the G20's weekend communique made no mention of currency levels.
"Risk is bid, the dollar is on its way down," said strategist at RBC Capital
Markets. "Like a broken record, the theme once again is U.S. dollar weakness
across the board."
U.S. equities jumped, pushing the Dow Jones Industrial Average (DJI) above 10,
000 again. The Standard & Poor's 500 Index (SPX) gained 2%.
The IMF report also said the dollar is being used as a funding currency for
carry trades, which involve borrowing funds denominated in lower-interest
currencies -- such as the dollar and yen -- and investing in higher-yielding
assets denominated in other currencies.
"These trades may be contributing to upward pressure on the euro and some
emerging-economy currencies," the IMF said.
The report said the euro "has experienced most appreciation among major
advanced economy currencies" and also "remains on the strong side of its
equilibrium."
The assurances from G20 leaders about securing growth confirmed the status
quo, said Neil Mellor, currency strategist at The Bank of New York Mellon.
"All in all, therefore, it is difficult to see this policy mix as anything
other than a recipe for continued dollar weakness ... particularly when we add
the familiar absence of concerted plans for cooperative, corrective action by
the G20," he said.
Add in the IMF's "rather frank assessment" that the dollar is on the strong
side, "the tolerance threshold of various central banks and finance ministries
is once more back under the spotlight," Mellor said.
Euro-zone officials have frequently complained about the weakness of the U.S.
dollar, arguing that the euro is being forced to bear the brunt of adjustments
between the U.S. unit and Asian currencies.
Analysts at BNP Paribas emphasized that the IMF remarks referred to the dollar
on a trade-weighted basis and largely reflect the undervaluation of Asian
currencies -- particularly the Chinese yuan.
Nevertheless, "the market will take this as a green light to continue with the
broader U.S. dollar bearish trade," they wrote.
(END) Dow Jones Newswires
11-09-091543ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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