US dollar drops further


  • Business
  • Friday, 17 Jan 2003

By KATHY FONG

WAR fears and uncertainties over the health of the US economy continued to apply downward pressure on the US dollar, sending it to a three-year low against the euro and a four-month low against the yen yesterday. 

The rising geopolitical tension had investors scurrying from the currency and US dollar-denominated assets, and the lower than expected 1.2% rise in US retail sales further dampened sentiment on the greenback.  

The US dollar dipped below the 118 yen level in early London trade yesterday. It was 118.09 yen to the dollar at the close of trading in Tokyo yesterday, compared with 118.11 in New York on Tuesday.  

With the US dollar falling below the 118-yen level, Japanese officials’ intervention rhetoric is expected to heighten, as the Japanese government had previously warned of an “overvalued yen.” 

The euro was quoted at 1.0565 to the US dollar in early London trade yesterday, compared with 1.049 in New York on Tuesday. 

“The selling of the US currency has accelerated in the last two weeks. Perhaps it is the fear of imminent war in Iraq, but with the weak state of the US economy, the dollar is deemed to be overvalued. The selling may not abate until the end of the month, '' said a trader.  

The ringgit, which is pegged at RM3.80 against the US dollar, has also depreciated against other major currencies that have strengthened on the soft greenback. 

A cheaper currency always appears to be a good tool to boost exports and also good for tourism. On the flip side, a weak ringgit will spark imported inflation because of dearer imported goods. 

Given the relatively low inflation rate in the economy, imported inflation is not a concern yet to many economists. They also do not see the need to vary the peg for the moment.  

The Australian dollar has strengthened substantially against both the US dollar and the ringgit. It rose to a 2½-year high of 58.89 US cents on Monday, and was quoted at 58.63 US cents in early London trade yesterday.  

The Aussie was quoted at RM2.2248 in early London trade yesterday – the highest since August 2000 – compared with RM2.22 in New York a day before. 

The commodity-based currency was quoted at RM2.217 yesterday in late Tokyo trade. 

The Aussie has been back in favour after touching a historical low of 47.75 US cents in April two years ago. Australia's high interest rate of 4.75% (cash rate) and rather resilient economic growth make the Aussie appealing to currency strategists. 

Across the causeway, the Singapore dollar was quoted at RM2.1931 yesterday compared with RM2.1916 on Wednesday. The currency had surged to a six-month high of 2.194 on Tuesday.  

The pound sterling was quoted at US$1.6034 yesterday in early London trade. It had jumped to a high of US$1.613 last Tuesday – the highest level since February 2000. 

However, the currency has not performed as well as its European peers such as the euro. The recent gloom surrounding the prospects of the UK economy has capped the currency's uptrend against the greenback. 

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