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Dollar Slides To Record Low Against Euro

Dollar Slides To Record Low Against Euro

Financial Times
October 22, 2007

The dollar hit a record low against the euro on Monday after the weekend G7 summit failed to explicitly address dollar weakness.

In their post-meeting communique G7 finance ministers urged China to let its renminbi appreciate more rapidly, but did not mention dollar weakness, which provided the catalyst for traders to dump the currency.

“The communique did not make any references to the levels of the dollar, euro or yen,” said Sue Trinh at RBC Capital Markets. She added: “This is, in effect, a green light to sell the dollar.”

After hitting a record $1.4348 against the euro, the dollar later clawed back to trade up 0.2 per cent on the session at $1.4280. Sterling climbed as high as $2.0537 against the dollar.

Japan’s yen hit a six week high of Y113.27 against the dollar, helped by rising aversion to risk after tumbling US equity markets drove the Nikkei 225 more than 2 per cent lower.

The unwinding of risky carry trades, where the low-yielding yen is sold to fund high-yielding purchases, led to hefty losses for the New Zealand and Australian dollars – which are among the highest yielding currencies.

Lee Hardman, currency economist at the Bank of Tokyo-Mitsubishi UFJ said the sharp fall in equity markets “reinforced risk aversion and encouraged the liquidation of yen carry positions”.

The Aussie fell 1.1 per cent to Y100.81 against the yen, while the Kiwi dollar shed 1.4 per cent to Y84.37.

The euro fell 0.8 per cent to Y162.40 against the yen and remained 0.4 per cent lower at Y163.

Sterling was 1.1 per cent lower at Y233.45 against the yen, lost 0.4 per cent against the dollar to $2.0435 and dropped 0.3 per cent to £0.6987 against the euro.

Elsewhere, the Turkish lira tumbled 2.1 per cent to TL1.2334 against the dollar as the country’s stock market took a dive after a rebel attack on Turkish soldiers was seen as increasing pressure on the government to launch an incursion into northern Iraq.

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