NEW YORK (AP) — The dollar steamed sharply higher Monday after the Russian finance minister voiced his support for the currency, even as the U.S. government said foreigners' dollar-denominated holdings fell in April. Sliding stock markets also fueled dollar buyers.
The 16-nation euro dropped to its lowest point in almost a month, trading at 1.3788 late Monday from 1.4010 late Friday. The British pound, meanwhile, slid to $1.6342 from $1.6450.
However, the dollar slipped to 97.65 Japanese yen from 98.24 yen.
Russian Finance Minister Kudrin said over the weekend it was too early to think of a reserve-currency alternative to the dollar, said UBS analysts, and he said the greenback was in good shape before the start of a meeting of Russian, Chinese, Indian and Brazilian officials on Tuesday. His comments gave support to the buck, even though Russian President Dmitry Medvedev could make a call for a reserve currency alternative for the dollar at the summit on Tuesday.
Officials from Russia, China and Brazil have said in recent weeks that they would invest in bonds issued by the International Monetary Fund to diversify their dollar-heavy currency reserves as they fear record U.S. government budget deficits, which could debase the value of their holdings.
China is Washington's biggest foreign creditor, holding an estimated $1 trillion in U.S. government debt. On Friday, a Chinese government official said the country had no plan to stop buying Treasurys, calming fears of sliding demand for the dollars used to buy U.S. government debt.
However, the Treasury Department on Monday said that foreigners, including China and Japan, the two biggest buyers of U.S. government debt, cut their Treasury holdings in April.
Net purchases of stocks, bonds and Treasurys by foreigners fell to $11.2 billion in April from $55.4 billion in March.
China cut its government debt holdings to $763.5 billion in April from $767.9 billion in March.
Foreigners are cutting their long-term dollar holdings — the safety buy that had driven the buck higher last winter — and reinvesting in riskier non-U.S. assets, said Bank of New York Mellon senior currency strategist Michael Woolfolk. On Monday, however, that news didn't hurt the dollar's upward turn as nervous investors stuck with the currency amid falling stock markets.
The Dow Jones industrials closed down 2.1 percent, while the broader S&P 500 lost 2.4 percent to 923.72.
The dollar's rise helped tamp down the rally in crude futures and other commodities, such as precious metals and agricultural goods.
Over the weekend, meanwhile, U.S. Treasury Secretary Timothy Geithner had suggested Washington would remain committed to its stimulus efforts at a summit of finance ministers from the Group of Eight industrialized countries. But the meeting did little to find solutions to banking and credit problems in Europe, said Brown Brothers Harriman analysts in a note to investors Monday. Stress-testing banks, as the Federal Reserve did in the U.S., is more complicated for the euro zone, as each country has its own regulatory structure.
On Monday, the European Central Bank said the worldwide financial crisis would continue to hit banks in the euro zone. It estimated another $283 billion in write-downs stemming from bad loans by the end of next year. Banks in the region wrote off 375 billion euros — now valued at $526 billion — in bad assets in 2008 alone.
The European Union's statistics agency on Monday also said its member countries saw a record drop in payrolls in the first three months of the year, losing 1.9 million jobs.
In other trading Monday, the dollar rose to 1.0928 Swiss francs from 1.0793 francs late Friday, and gained to 1.1337 Canadian dollars from 1.1184.
The dollar gained broadly, rising against the Australian, New Zealand, Brazilian, Mexican and South Korean currencies.
by the wall street journal
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