Dollar hit by subprime fears, euro strikes record
Sunday, 22 July 2007
NEW YORK, July 21 (AFP): The European single currency soared to a new record high against the dollar yesterday as the US currency continued to be undermined by housing market worries.
The euro at 2100 GMT fetched 1.3820 dollars from 1.3802 in New York late Thursday, after trading as high as 1.3843 dollars.
The pound rallied to a fresh 26-year high to 2.0546 dollars after 2.0486 Thursday.
The dollar also hit a six-week low against the yen of 120.85. It later stood at 121.26 yen, down from 121.99 yen Thursday.
In late New York trade, the dollar stood at 1.2007 Swiss francs from 1.2031 Thursday. "With no economic data released yesterday, the only thing that could rattle the currency markets was a reversal in US stocks," said Kathy Lien at Forex Capital Markets.
Worries about problems in the US subprime mortgage sector-loans to homeowners with patchy credit histories-caused sharp falls on global equity markets Friday as investors reduced their exposure to risk.
Investors are concerned that the housing market problems could spread to the rest of the US economy after Federal Reserve chairman Ben Bernanke warned this week of an impact on growth.
BNP Paribas currency analyst Ian Stannard said sharp losses in the dollar against the yen were because of an unravelling of the carry trade caused by risk aversion among traders.
The carry trade is a risky but popular practice of borrowing money in countries with low interest rates such as Japan and investing in countries with high interest rates such as Australia or Britain.
In addition to worries about the housing market and the outlook for the US economy, the dollar has also been hampered by prospects of higher interest rates in Europe and elsewhere.
While the European Central Bank appears set to lift eurozone borrowing costs in September from the current level of 4.00 per cent, the US Federal Reserve has frozen American rates at 5.25 per cent for 13 months.
The euro at 2100 GMT fetched 1.3820 dollars from 1.3802 in New York late Thursday, after trading as high as 1.3843 dollars.
The pound rallied to a fresh 26-year high to 2.0546 dollars after 2.0486 Thursday.
The dollar also hit a six-week low against the yen of 120.85. It later stood at 121.26 yen, down from 121.99 yen Thursday.
In late New York trade, the dollar stood at 1.2007 Swiss francs from 1.2031 Thursday. "With no economic data released yesterday, the only thing that could rattle the currency markets was a reversal in US stocks," said Kathy Lien at Forex Capital Markets.
Worries about problems in the US subprime mortgage sector-loans to homeowners with patchy credit histories-caused sharp falls on global equity markets Friday as investors reduced their exposure to risk.
Investors are concerned that the housing market problems could spread to the rest of the US economy after Federal Reserve chairman Ben Bernanke warned this week of an impact on growth.
BNP Paribas currency analyst Ian Stannard said sharp losses in the dollar against the yen were because of an unravelling of the carry trade caused by risk aversion among traders.
The carry trade is a risky but popular practice of borrowing money in countries with low interest rates such as Japan and investing in countries with high interest rates such as Australia or Britain.
In addition to worries about the housing market and the outlook for the US economy, the dollar has also been hampered by prospects of higher interest rates in Europe and elsewhere.
While the European Central Bank appears set to lift eurozone borrowing costs in September from the current level of 4.00 per cent, the US Federal Reserve has frozen American rates at 5.25 per cent for 13 months.