The dollar is set to tumble in coming weeks from six-month lows reached today against the euro and yen on concern Tuesday's terrorist attacks in the US will trigger a recession and quash demand for US stocks.
A pause in the tide of foreign investment to the world's largest economy would undermine the currency because the US relies on those inflows to offset its trade deficit, which sends about US$1 billion daily into foreign hands. Some investors said US stocks may fall as much as 6 percent when the markets reopen Monday for the first time since the attacks.
"The US and world economy was already vulnerable with a significant slowdown, particularly in US investment, and this certainly won't help," said Bob Baur, chief economist at Invista Capital Management in Des Moines, Iowa, which manages more than US$23 billion in equities. "Money will tend to leave the US because this event happened here, and from a dollar standpoint there will be a negative reaction."
The US currency fell 3.7 percent against the Swiss franc since trading on Tuesday morning, before terrorists flew hijacked passenger planes into New York's twin World Trade Center towers.
The dollar also fell about 2.5 percent against Europe's 12-nation currency, to US$0.9207 per euro, and dropped 3.5 percent to ?117.22 Japanese, in that time.
While investors usually move into dollars at times of international crisis, "if this [threat of terrorism or retaliation] becomes protracted, people will probably try to seek the safe haven of the Swiss franc, and to some extent the British pound and euro" instead, said Jay Bryson, an international economist at First Union Corp in Charlotte.
GE, Ford Motor Co, and US insurers including MetLife and John Hancock Financial Services Inc. are among US companies that today said they are cutting earnings forecasts for the present quarter as a result of the attacks' disruption of production, consumer demand, and insurance claims.
The lower earnings forecasts come after release this week of economic reports showing little evidence of a pickup in growth.
Bigger-than-expected drops in US industrial production in August and preliminary consumer confidence from surveys before Sept. 11, added to expectations economic growth will sink further.
"The appetite for US investments dried up because the US economy was already going through a slowdown,'' said Nicholas Reitenbach, chief investment officer of Pinnacle International Management, which manages more than US$600 million.
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