Dollar gains as auto, bank troubles spook markets
NEW YORK
Dollar & Gold News, AP - 8 months ago
The dollar surged against the European currencies but fell against the Japanese yen Monday as economic distress over the weekend fed into investors' desire for the safe buck.
The 16-nation euro dropped to $1.3161 in New York trading from $1.3304 late Friday, while the British pound fell to $1.4196 from $1.4302.
It was the dollar's highest point since March 18, when the Federal Reserve said it would pump more than $1.2 trillion into the money supply and sent the dollar plunging.
Over the weekend, the U.S. government rejected car makers' restructuring plans, worsening investors' bankruptcy fears, while there were reports of $2 billion more in write-downs and thousands of job cuts at Swiss bank UBS AG.
Fearful traders sold off equities, driving down the Dow Jones industrials nearly 3.5 percent in morning trading as stocks also sank in Europe and Asia.
On Monday, the European Commission said euro zone business and consumer confidence dropped to 24-year lows in March ahead of the European Central Bank's interest-rate announcement Thursday.
The ECB is expected to cut its main rate by half a percentage point to another record low of 1 percent.
Cutting interest rates can undermine a currency as investors transfer funds to where they can earn better returns.
The market will also be looking for any word from ECB President Jean-Claude Trichet on unconventional liquidity measures, such as have been put into place by the Federal Reserve, Bank of England, and Swiss and Japanese central banks.
Flooding the system with money can spark inflation and has caused pain in currencies as their governments initiate bond-buying.
The Federal Reserve's announcement that it would buy up to $300 billion in long-term Treasurys and $1.2 billion in mortgage-backed securities helped send the dollar on a roller-coaster ride over the past two weeks. Last week's bank rescue plan, which would scrub balance sheets of toxic assets with the help of private funds, and the affirmation of the dollar as the world's reserve currency of choice by Treasury Secretary Timothy Geithner and the head of the International Monetary Fund, helped the dollar recover.
"The shock induced by the Fed's recent surprise decision to buy Treasurys appears to have subsided," wrote UBS analysts in London.
Looking forward, leaders of the world's 20 most economically developed countries are expected to shun protectionism and improve regulation when they convene in London for the Group of 20 summit on Thursday.
Meanwhile, China inked a currency swap agreement with Argentina over the weekend so that the countries could settle deals without the dollar. Argentina is the fifth country after South Korea, Malaysia, Belarus and Indonesia to sign such a currency swap deal with China.
In other trading, the dollar rose to 1.1505 Swiss francs from 1.1426 francs last week, but dropped to 97.08 Japanese yen from 98.04 yen.
The dollar rose to 1.2643 Canadian dollars from 1.2374 and gained on the New Zealand and Australian currencies as oil prices dropped below $50 for the first time in a week.