Tags: Dollar

Jitters Push Dollar to Six Month High Against Euro

Wednesday, 27 Jan 2010 11:59 AM

The dollar hit a six-month high against the euro Wednesday amid ongoing anxiety about public finances in weaker European countries.

Markets also waited for an afternoon decision on interest rates from the Federal Reserve. The Fed is expected to keep the official rate in a range near zero.

The 16-nation euro dropped as low as $1.4022 in European trading, its weakest point since July 2009. In morning trading in New York, the euro traded at $1.4048, down from $1.4086 late Tuesday.

The dollar was broadly higher against emerging-market currencies in Asia, Europe and Latin America. But it slipped versus the British pound and Japanese yen.

The pound rose to $1.6190 from $1.6147 late Tuesday, while the dollar fell to 89.34 yen from 89.71.

Any hint from the Federal Reserve that it is preparing to raise borrowing rates should give a boost to the dollar.

Low interest rates can weigh on a currency as investors transfer funds to where they could earn higher returns. The U.S. has one of the lowest official interest rates of the major economies. Many emerging-market countries have substantially higher rates.

Even without any changes in language from the Fed, traders are likely to keep buying dollars, said Ashraf Laidi, an analyst with CMC Markets in London.

He said Portugal's 2010 budget is prompting talk of a credit downgrade, such as those that have hit Greece. Portugal's finance minister said late Tuesday that the budget deficit was expected to have hit 9.3 percent of gross domestic product last year — well above the 3 percent allowed for countries using the euro.

The government's goal is to bring the deficit to below 3 percent by 2013.

Trading of Portuguese bonds implies doubts over whether Portugal will be able to do that, said Brown Brothers Harriman analyst Marc Chandler.

Meanwhile, Greek bond yields are soaring, suggesting the risk of a default has increased.

President Barack Obama's State of the Union speech Wednesday evening will also draw attention to see if more moves to curb big banks' size or trading are proposed. Uncertainty over policy could boost the dollar, Laidi said.

In other trading Wednesday, the dollar rose to 1.0640 Canadian dollars from 1.0605 late Tuesday, and gained to 1.0474 Swiss francs from 1.0459 francs.

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The dollar hit a six-month high against the euro Wednesday amid ongoing anxiety about public finances in weaker European countries.Markets also waited for an afternoon decision on interest rates from the Federal Reserve. The Fed is expected to keep the official rate in a...
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2010-59-27
 

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