Greenback comes under renewed pressure amid war fears


  • Business
  • Tuesday, 07 Jan 2003

By KATHY FONG

THE US dollar came under renewed pressure yesterday on fresh reports that American forces were gearing up for imminent military action in Iraq, heightens the risk of holding the greenback and US dollar-backed assets. 

Lingering uncertainty about the health of the US economic further dampened sentiment on the US currency.  

Consequently, Asian and other major currencies have appreciated against the dollar as investment funds look for safe haven elsewhere.  

The Japanese yen was quoted at 119.1 against the greenback at the close of Tokyo trading yesterday, compared with 119.7 in New York last Friday. In European trading, the euro was quoted at US$1.047 at mid-morning, compared with US$1.05 last week, and the pound sterling at US$1.616.  

The yen had strengthened to a high of 118.52 against the US dollar on Dec 30 due to growing war fears, prompting the Japanese government to warn of possible market intervention to curb the uptrend. 

Japanese Finance Minister Masajuro Shiokawa said there was a global perception that the yen was too strong and its correction would be “natural.” 

The ringgit, which is pegged to the US dollar at RM3.80, has depreciated against regional currencies in tandem with the weakening greenback, and that will help boost the country's export competitiveness and tourist arrivals.  

Analysts, however, said further appreciation of Asian currencies against the US dollar would be limited as the region's central banks were monitoring the trend closely and intervention was likely to cap any sudden surge in the value of their national currencies. 

As the analysts pointed out, there is always concern that a sharp appreciation of Asian currencies against the US dollar would hurt the regional exports as a whole. 

“You will continue to see Asian currencies moderately well-supported in a weak US dollar environment, but not excessive rises,'' Bloomberg wire service quoted National Australia Bank Ltd market strategist Michael Jansen as saying.  

He said there was “genuine reluctance” to see Asian currencies appreciate when the demand for export was soft.  

Economists said the US dollar would have to adjust downward to narrow the growing deficit in the world's largest economy, which depends very much on foreign capital to finance its huge current account deficit of about US$400bil. 

They said war fears were currently the dominant factor that was weakening the dollar. But the underlying cause of the soft dollar is the waning confidence in the US economy and corporate earnings, resulting in increasing capital outflow.  

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