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Foreign Exchange

Currency trading: The dollar: it’s down but not yet out

The US dollar’s long-term weakness looks set to persist as the currency seems to fall to a fresh historical low against the euro on a weekly basis. The latest G7 meeting, held over the weekend of October 20-21, did nothing to provide any support. In the immediate aftermath of the meeting, the dollar fell to 1.4349 against the euro before bouncing. The reasons for the recovery, at this stage, are not clear.

However, with the dollar fast approaching its all-time synthetic low of around 1.4550, it might well start to attract speculative buying. Another likely reason is that it has got crossed-up and might well derive some support from the fact that it is now also being sold against the yen.

As Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi in London, commented: "Yen buying has intensified after comments at the G7 meeting in Washington indicated that the US authorities have become more concerned over the potential impact of the US housing market collapse.The lack of verbal support for the dollar at the G7 meeting is evident today by the dollar index, which hit a new record low of 77.09."

Hardman concluded: "The notable lack of support for the dollar is likely to leave market participants with an impression that the US authorities are privately content with a weaker dollar given the support from net exports to overall GDP growth."

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