Dollar hits 2-year peak on global economic woes
Thursday, 23 October 2008
TOKYO, Oct 22 (Reuters): The dollar jumped to a two-year high against a basket of currencies on Wednesday as investors bet that interest rates outside the United States will be cut sharply to try to bolster global growth.
Concerns there may be a deep slowdown in the world economy prompted investors to liquidate more bets against the dollar built up in recent years, which at one point this year sent the euro to a record high above $1.60, traders said.
The yen also climbed to a four-year high against the euro as investors further unwound risky carry trades that had been a worldwide fad since the early 2000s.
Traders said investors, from Japanese life insurance firms to hedge funds, were dumping riskier assets in thin trade, bolstering safe-haven currencies like the U.S. dollar and yen. Some said the euro's recent slide against the dollar and yen also likely reflected fund repatriation by U.S. and Japanese investors.
But all that has changed now, traders said.
"People are shifting from high leverage to low leverage and to cash, and this shift is expected to continue," said Satoshi Okagawa, head of FX forwards trading group at Sumitomo Mitsui Banking Corp.
The euro fell 1.7 percent to $1.2831 after dropping as low as $1.2740 on trading platform EBS, a fresh 20-month low.
Sterling was down 2.5 percent at $1.6255 after sliding as low as $1.6201, its lowest since September 2003.
The dollar index, which measures the greenback's value against a basket of six currencies, was up 1.5 percent to 85.658, after rising to 85.921, the highest since November 2006.
Concerns there may be a deep slowdown in the world economy prompted investors to liquidate more bets against the dollar built up in recent years, which at one point this year sent the euro to a record high above $1.60, traders said.
The yen also climbed to a four-year high against the euro as investors further unwound risky carry trades that had been a worldwide fad since the early 2000s.
Traders said investors, from Japanese life insurance firms to hedge funds, were dumping riskier assets in thin trade, bolstering safe-haven currencies like the U.S. dollar and yen. Some said the euro's recent slide against the dollar and yen also likely reflected fund repatriation by U.S. and Japanese investors.
But all that has changed now, traders said.
"People are shifting from high leverage to low leverage and to cash, and this shift is expected to continue," said Satoshi Okagawa, head of FX forwards trading group at Sumitomo Mitsui Banking Corp.
The euro fell 1.7 percent to $1.2831 after dropping as low as $1.2740 on trading platform EBS, a fresh 20-month low.
Sterling was down 2.5 percent at $1.6255 after sliding as low as $1.6201, its lowest since September 2003.
The dollar index, which measures the greenback's value against a basket of six currencies, was up 1.5 percent to 85.658, after rising to 85.921, the highest since November 2006.