Dollar Rises After Hitting 14-Month Low
The dollar reversed direction after hitting a 14-month low against the euro in volatile trading Monday after a regional Chinese central bank researcher argued for diversification of the country’s reserves away from the greenback.
The euro touched a 14-month high of $1.5061 in overnight trading before dropping to $1.4859 in late New York trading. Late on Friday, the euro was at $1.5002.
Meanwhile, the dollar edged up to 92.21 Japanese yen from 92.10 yen, and the British pound fell to $1.6303 from $1.6311.
Brown Brothers Harriman analyst Marc Chandler said the rebound was a technical reversal.
“The dollar is sharply higher against most major and emerging currencies yet there has been no major catalyst to shift sentiment in favor of the U.S. dollar,” Chandler wrote in a client note.
The sharp swings in currency and commodities, most of which are priced in dollars, sent the Dow Jones industrial average whipsawing.
Also Monday, a strong economic report from South Korea sparked an equities rally in early trading and dulled the buck’s safe-haven luster. South Korea’s central bank said the Asian country’s economy grew 2.9 percent in the third quarter, up from 2.6 percent growth the previous three months. That’s the fastest pace of growth for Asia’s fourth-largest economy since the beginning of 2002 and underscored the region’s recovery.
Last week, China said its economic output rose 8.9 percent in the third quarter. Japan’s economic activity increased at an annual pace of 2.3 percent in the second quarter.
The dollar dropped to 1180.50 South Korean won Monday from 1188.30 won late Friday.
Investors have tended in the past year to buy the dollar as a safe haven when economic reports or corporate earnings are worse than markets had expected. Earnings that are surprisingly strong have driven the buck lower as investors are prompted to seek out higher returns than they can get from the low-yielding dollar.
That low yield comes from the rock-bottom U.S. interest rate near zero that the Federal Reserve is maintaining to prompt lending and economic growth.
Politicians and bank officials from big exporters, including China, that hold huge amounts of U.S. Treasurys as reserves have expressed unease with this situation as the value of their dollar holdings falters.
On Monday, a regional People’s Bank of China researcher said in a report that the country should increase the amount of currencies other than the dollar in its reserves in a newspaper published by the Chinese central bank.
The bank sometimes publishes the opinions of officials or researchers as a way of gauging public reaction to different policy approaches. Simply publishing such a report doesn’t mean that policy will happen, but several more high-profile officials this year have voiced concerns about the U.S. dollar, which has been dropping steadily since spring, and talked up alternatives to the buck as the world’s supreme reserve currency.
China’s reserves are the biggest in the world. The country is the biggest buyer of U.S. government debt and is believed to keep almost half of its reserves in U.S. Treasurys and notes issued by government-affiliated agencies.
“China has shown little sign of diversifying out of reserves,” wrote Brown Brothers Harriman currency analysts in a note to investors Monday morning.
In other late New York trading, the dollar edged up to 1.0675 Canadian dollars from 1.0523 late Friday, and advanced to 1.0189 Swiss francs from 1.0087 francs.
10/26/2009 5:24 PM NEW YORK (AP)