–The Euro...The New World Currency?
 

Dollar plumbs new lows on talk of central bank selling
Business - AFP

LONDON- The dollar trawled record depths against the euro, hit by signs that central banks in Russia and elsewhere could step up sales of the ailing US currency to buy euros.

The single European currency soared to a new record against the dollar, reaching 1.3178 dollars in late European trading.

It was the third record high of the day, and the second straight day of record highs for the euro, which has been boosted by concerns about the US budget and current account deficits.

The euro then eased back, changing hands at 1.3174 dollars, against 1.3084 late on Tuesday in New York.

The dollar fell to 102.89 yen from 103.30 on Tuesday.

The dollar sell-off has gathered pace over the week as concerns over the US's twin deficits combined with talk the Russian Central Bank is reviewing the structure of its currency reserves away from the US currency.

Whether or not Russia reduces the weight of the dollar in its foreign exchange reserves, analysts said the US currency will stay on the backfoot so long as the US continues to record massive deficits on both the current account and the fiscal front.

"The dollar is friendless and in danger of freefall," said Neil Mackinnon, chief economist at ECU Group.

As long as the market believes the US administration is following a policy of benign neglect, then the dollar will continue to fall whatever the European Central Bank and the Bank of Japan does to counter-act it, he added.

In that scenario, not even strong US data can provide the dollar respite, with analysts now widely predicting the euro hitting 1.45 dollars and a two dollar pound is just around the corner. Meanwhile, there is even talk that the dollar could drop to 85 yen.

Though US durable goods orders data published Wednesday declined marginally in October, there was continuing evidence of a jobs rebound and further strength in the housing market.

Despite this brighter US economic picture, the dollar continues to slide in the currency markets against all its major rivals in the wake of last weekend's G20 meeting of finance ministers and central bankers.

That meeting eliminated any expectation that there would be concerted action to help stabilise the dollar.

That does not mean the European Central Bank or the Bank of Japan will not intervene in the markets to stem their respective currencies' appreciation against the dollar, but analysts said the chances of success are minimal given the market's over-arching dollar sentiment.

"The market believes intervention will be ineffective, and there is now a strong view the ECB will not intervene, while the market waits for the BoJ to follow words with actions," said ECU Group's Mackinnon.

The ECB's last foray onto foreign exchange markets was in late 2000, when it acted in coordination with other G7 countries to buy euros and sell dollars after the European currency plunged to a record low of 0.8230 dollars.

The BoJ is no stranger in the currency markets, having intervened on a regular basis over the last year to stem the yen's appreciation

The renewed bout of selling this week was sparked by comments from the Russian authorities hinting at plans to continue to switch their currency reserves into euros, to the detriment of the dollar.

The euro was changing hands at 1.3174 dollars against 1.3084 late on Tuesday in New York, 135.52 yen (135.16), 0.7001 pounds (0.7000) and 1.5105 Swiss francs (1.5152).

The dollar stood at 102.89 yen (103.30) and 1.1463 Swiss francs (1.1582).

The pound was at 1.8824 dollars (1.8685), 193.65 yen (192.99) and 2.1578 Swiss francs (2.1645).

On the London Bullion Market, the price of an ounce of gold stood at 448.60 dollars against 448.15 late on Tuesday.