Sun, Dec 29, 2002 - Page 10 News List

Greenback plummets to a three-year low versus euro

BLOOMBERG , NEW YORK

The dollar fell to its lowest against the euro in more than three years on concerns the US will attack Iraq and North Korea will resume development of nuclear weapons.

"Until the North Korea and Iraq issues are sorted out" the dollar will weaken, said David Rolley, who manages global bonds at Loomis Sayles & Co in Boston, which invests about US$50 billion in fixed income. Foreign investors see little reason to buy US stocks "at these levels unless you're confident we're looking at an accelerating world recovery and improving earnings. Without that demand, it's going to be difficult for the dollar."

The US currency weakened to US$1.0436 per euro at 4:40pm in New York from US$1.0375 yesterday. It reached US$1.0442 earlier, its lowest value since Nov. 17, 1999. The dollar was little changed at ?119.89 from ?119.96.

For the week, the dollar lost 1.6 percent against the euro and 0.4 percent against the yen. The US currency has slumped more than 4 percent against the 12-nation euro in the past month.

Trading is below average because of holidays this week and next, and that can exaggerate swings in exchange rates, traders said.

Stocks declined, pushing the benchmark Standard & Poor's 500 Index down 1.6 percent, extending its drop this year to 23.8 percent.

Some foreign investors are putting less money in US stocks, damping demand for the currency, on the prospect President George W. Bush will lead a war against Iraq, analysts said. The nation's current account deficit, the broadest measure of trade, means the US must attract almost US$1.4 billion a day from abroad to sustain the dollar's value.

Concern about war will keep the euro above US$1 through the end of March, according to 76 percent of the 51 currency analysts surveyed by Bloomberg News. Almost three quarters of those polled see it at that level at the end of nest year.

The US currency has dropped 14.8 percent against the euro and 9 percent against the yen this year as a recovery in the world's largest economy failed to accelerate.

Growth probably slowed to a 1.5 percent annual rate this quarter from a 4 percent pace from July through September, according to a Bloomberg News survey of economists.

Wal-Mart Stores Inc, the world's largest retailer, lowered its December sales forecast yesterday as consumers concerned about growth and jobs curtailed spending. It was the worst holiday season in more than three decades for US retailers.

"We are starting to see reports out of the US retailers adding to the dollar's weakness," said Andrew Busch, senior currency trader at Bank of Montreal in Chicago. The dollar may weaken to US$1.0450 per euro in coming days, he said.

Escalating tensions with North Korea may also hurt the dollar. North Korea expelled UN nuclear inspectors, Yonhap News reported, citing the country's Chosun Central Broadcasting Station.

Speculation the US may be drawn into another conflict is mounting as North Korea flouts its 1994 agreement to freeze production of nuclear fuel. Defense Secretary Donald Rumsfeld last week said the US can fight two wars at the same time.

A US attack on Iraq "could easily be seen as very bearish," weakening the dollar to US$1.10 per euro in the next month, said Chuck Spence, head of foreign exchange sales at ING Capital Markets LLC. "In the Gulf War the dollar suffered because consumers were reluctant to spend, they were fearful of flying, and consequently the economy shrunk."

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