Dollar dips deeper into doldrums

The dollar fell below 96 yen for the first time in 12 years earlier yesterday after the Federal Reserve's emergency weekend cut in its discount interest rate and the sale of Bear Stearns Cos to JPMorgan Chase & Co.

The dollar dropped to a record low against the euro and the Swiss franc as the Fed made its first weekend change in borrowing costs since 1979 and Bear Stearns was acquired for less than a 10th of its March 14 value. All the bets are on the Fed slashing its benchmark rate by 1 percentage point today to stem a slump in confidence in financial markets, interest-rate futures show.

"I find it outrageous that the Fed is just throwing the dollar out of the window," Jim Rogers, chairman of Rogers Holdings, co-founder of the Quantum Hedge Fund with George Soros, said. "They are signaling to the whole world that they have given up on the dollar. Most of my US dollar assets are gone."

The dollar fell to as low as 95.76 yen, the weakest since Aug 15, 1995, before trading at 96.36 yen at 7:34 am in New York, from 99.09 yen on March 14. Against the euro, the dollar dropped to $1.5903, the weakest since the creation of the single European currency in 1999, and was at $1.5775 from $1.5674. It slid to a record 0.9658 Swiss francs.

The Australian and New Zealand dollars fell on speculation investors will spurn higher-yielding currencies as financial turmoil deepens. Australia's currency declined to 92.39 US cents from 93.74 cents. The New Zealand dollar weakened to 80.44 US cents from 81.34 cents.

Pound record low

The British pound dropped the most in six years against the euro as concern that credit losses will widen reduced demand for higher-yielding currencies. It traded at 79.12 pence, the lowest level since the common currency's 1999 inception, and was last at 78.86, from 77.58 pence on March 14. It fell to $2.0014 from $2.0202.

Goldman Sachs Group Inc and Morgan Stanley strategists say that coordinated action by policy makers to curb the dollar's slide is increasingly likely. In intervention, central banks buy and sell currencies to influence exchange rates.

Investors should sell dollars for yen due to stress in the financial system, Goldman Sachs analysts Thomas Stolper and Jens Nordvig, wrote in a note yesterday.

"Risk aversion, falling rate differentials and potentially large shifts in corporate hedging behavior suggest the yen could rally further," they wrote.

The US currency has lost about 16 percent against the euro and 17 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points. The Fed lowered the rate it charges commercial banks for loans by a quarter percentage point to 3.25 percent in early Asian trade.

Agencies

(China Daily 03/18/2008 page17)