Dollar left behind in ‘scramble for value’

The dollar fell to a record low against the euro Tuesday as worries over the state of the US economy continued to weigh on the currency.

The dollar fell to a low of $1.4571 against the euro, declining below Friday’s all-time trough of $1.4528 before paring its gains to stand down 0.7 per cent at $1.4560 by midday in New York.

The dollar index, which tracks its value against a basket of six leading currencies, dropped to a record low of 75.986.

Mitul Kotecha, at Calyon, said the dollar remained susceptible to further declines over coming days.

“Concerns about financial sector credit problems have once again dampened risk appetite,” he said. “And once again the fact that these concerns have originated in the US, following announcements of losses at US banks, has meant that the dollar has failed to benefit from safe-haven buying.”

The dollar fell 0.4 per cent to a fresh 26-year low of $2.0906 against the pound; dropped 0.8 per cent to SFr1.1437 against the Swiss franc and eased 0.1 per cent to Y114.35 against the yen.

Commodity-linked currencies benefited as gold and oil prices advanced.

Ian Mellor, at Bank of New York Mellon, said that the uncertain proportions of the banking crisis, the dwindling support for the dollar and surging commodity prices had shrouded the global economic outlook in uncertainty.

“Accordingly there has been a scramble for a creditable store of value,” he said. “So, gold, commodities in general and the currencies of their producers – items of tangible worth – have risen to the top of the market’s shopping list.”

The Canadian dollar rose 0.9 per cent to a fresh record high of C$0.9237 against the dollar, the Norwegian krone climbed 0.9 per cent to NKr5.3410 while the South African rand gained 1 per cent to R6.5000.

The Australian dollar rose 0.6 per cent to $0.9250 against the dollar. Analysts said the Aussie, which last week hit a 23-year high above $0.9340, was receiving support from expectations that the Reserve Bank of Australia would move to raise interest rates after its policy meeting Wednesday.

“The RBA is universally expected to raise interest rates by 25 basis points to 6.75 per cent,” said Gavin Friend at Commerzbank.

“Providing the market gets what it expects, the Australian dollar should consolidate at these heady levels and at least take a look at recent highs.”

The yen lost ground after figures showed the Japanese economy continued to lose momentum.

Japan’s leading economic index, the broadest indicator of the country’s economic outlook, dropped to zero in September.

The yen fell 0.5 per cent to Y166.44 against the euro and lost 0.3 per cent to Y238.70 against the sterling.