Dollar Hits Fresh 15-Year Low

Dollar hits fresh 15-year low

http://www.ft.com/cms/s/0/e1281bc8-6...0779fd2ac.html

By Peter Garnham
Published: September 11 2007 12:04 | Last updated: September 11 2007 12:04

The dollar fell to a fresh 15-year low against a basket of currencies on Tuesday as the greenback continued to suffer from the prospect of a cut in US interest rates.

Expectations that the Federal Reserve would move to lower interest rates at its meeting on September 18 have increased since last week’s US employment report, which showed the recent turmoil in the credit markets had spilled over into the wider economy.

“The dollar remains undermined by the increasing prospect of monetary easing by the Federal Reserve as it attempts to forestall the US economy from slipping into recession,” said Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ.

Analysts said a sharp rise in the price of oil caused by attacks on oil and gas pipelines in Mexico and doubts that Opec would raise its production quotas at its Vienna meeting had not helped the dollar’s cause.

Paul Robson at Royal Bank of Scotland said higher oil prices would be a short-term focus for the currency investors.

“Euro/dollar tends to be positively correlated with the oil price as it makes Fed rate cuts more likely and European Central Bank more cautious [over inflation],” he said.

The dollar fell 0.2 per cent to $1.3820 against the euro, just shy of the record low of $1.3852 it hit in July.

This helped the dollar index, which tracks its value against a basket of six leading currencies, fall to a low of 79.787, its weakest level since September 1992.

The dollar also edged 0.1 per cent lower to $2.0300 against the pound, but was flat at Y113.60 against the yen as the Japanese currency showed little reaction to data showing a jump in Japanese machinery orders in July.

Mansoor Mohi-uddin at UBS said the surprisingly positive figures should throw the probability of the Bank of Japan raising interest rates this year back into the mix.

“We maintain our view that the BoJ will hike its target rate to 0.75 per cent in October,” he said.

However, the yen failed make progress as a rally on global stock markets saw investors shy away from the low-yielding yen in favour of riskier, higher-yielding assets.

The yen slipped 0.1 per cent to Y157.00 against the euro and edged lower to Y230.50 against the pound.

Meanwhile, rising crude prices gave the currencies of oil producing countries a boost. The Canadian dollar rose 0.3 per cent to C$1.0475 against the dollar, while the Norwegian krone climbed 0.1 per cent to NKr5.6830.