Dollar comes back from year low
September 25, 2009
New York - The dollar charged higher on Thursday as disappointing news on home sales drove stock markets lower.
The dollar, which is extremely cheap to borrow, has become "the funding currency of choice", said David Solin of Foreign Exchange Analytics in Essex, Connecticut. That means it's going to tend to trade inversely with other assets, such as stocks, gold and oil.
This risky "funding" trade means that traders borrow dollars in order to buy up other assets that may give bigger returns on funds, such as emerging-market currencies or equities.
The 16-nation euro fell to $1.4654 in late New York trading from $1.4802 late Wednesday. The euro peaked at $1.4842 Wednesday, its highest level in 12 months.
The British pound also tumbled to $1.6063 from $1.6419 - trading at its lowest point since June 9 - after the Bank of England released a document Wednesday saying "there could be false dawns" on the path to recovery.
In the minutes to a central bank meeting earlier this month, the officials did not rule out a future increase in a program that boosts the country's money supply but can weigh on its currency.
Also on Thursday, Bank of England Governor Mervyn King said in an interview published in The Journal, a British newspaper, that the pound's fall was "helpful" to the process of rebalancing the UK's economy.
The pound "is proving to be the lose-lose currency," said Ashraf Laidi, chief market strategist at CMC Markets in London.
The dollar also edged up to 91.27 Japanese yen from 91.13 yen late on Wednesday.
On Wednesday, the Federal Reserve said it had seen improvements in the economy since August, would leave interest rates very low for "an extended period" and would wrap up its liquidity-boosting program of buying long-term Treasurys by October.
The key federal funds rate - what banks charge each other on short-term dollar loans - remains at a range near zero.
On Thursday, the National Association of Realtors said existing home sales fell 2.7 percent in August. Sales had risen for four straight months and economists had been hoping for a fifth monthly gain to be a signal of a housing-market recovery.
Investors will also be looking to statements from the Group of 20 meeting in Pittsburgh this week for any hints of policy that may affect world trade and the dollar.
In other late trading Thursday, the dollar rose to 1.0303 Swiss francs from 1.0229 Swiss francs, and jumped to 1.0903 Canadian dollars from 1.0697. - Sapa-AP
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