Dollar falls as currency war concerns linger

October 11, 2010
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, LONDON, Oct 11 – The dollar fell against the euro and yen on Monday after the world\’s top finance officials failed to reach a consensus on measures to head off what some see as a looming "currency war", analysts said.

The euro reached 1.40 dollars, while the US unit hit a fresh 15-year low against the yen amid growing expectation that the Federal Reserve will pump more money to bolster the struggling US economy, they added.

"The euro was given a boost after the IMF meeting, which failed to resolve the so-called currency war," said Kathleen Brooks, an analyst for online trading company Forex.com.

The European single currency reached 1.4012 dollars a few days after breaching the 1.40 level for the first time for eight months.

In mid-morning trading, the euro stood at 1.3946 dollars, compared with 1.3926 dollars late on Friday in New York.

Against the Japanese currency, the dollar dropped to 81.39 yen — the lowest point since April 1995 and below the level which triggered Japanese government intervention in the foreign exchange market on September 15.

International Monetary Fund policymakers failed on Saturday to reach a consensus on measures to head off what some see as a looming currency war but pledged to keep working toward easing global economic imbalances.

With economic recovery painfully slow, recent weeks have seen nations from Japan to Colombia intervene to stop their currencies from rising to levels that would make exports prohibitively expensive, sparking talk of a currency war.

South Korea on Monday warned that failure to settle disputes about currency policy could fuel protectionism and damage the world economic recovery.

President Lee Myung-Bak, in a lunch with foreign correspondents before next month\’s Seoul G20 summit, urged members not to pursue only national interests.

Analyst Brooks said the euro "may end up being the loser" of the currency war.

"The ECB\’s stance of continuing with its plans to withdraw special liquidity facilities from Europe\’s financial system is pushing up inter-bank interest rates in Europe," she explained.

"This is in direct contrast to the UK and the US, where the prospect of further monetary stimulus from their central banks is pushing rates down to near record lows, thus boosting the single currency.

"The ECB\’s decision to maintain its exit strategy and refusal to engage in any type of currency debasement — whether direct or indirect — puts the single currency at risk from further upward pressure if global tensions concerning foreign exchange rates continue to rise," Brooks added.

Expectations of another round of easing by the US Federal Reserve increased after a report Friday by the US Labor Department showed that the world\’s biggest economy had shed an unexpected 95,000 non-farm jobs in September.

"Private employment continues to expand at a slow and steady pace that is not sufficient to meaningfully bring down the unemployment rate — a picture that has been consistent with expectations for further Fed easing," said Vassili Serebriakov of Wells Fargo.

The British pound was lower on expectations of fresh stimulus measures from the Bank of England to support Britain\’s fragile economic recovery, traders said.

Approaching midday in London, the euro changed hands at 1.3946 dollars against 1.3926 dollars late in New York on Friday, at 114.36 yen (114.29), 0.8749 pounds (0.8727) and 1.3434 Swiss francs (1.3419).

The dollar stood at 82.00 yen (82.06) and 0.9633 Swiss francs (0.9635).

The pound was at 1.5939 dollars (1.5959).

On the London Bullion Market, the price of gold climbed to 1,348.55 dollars an ounce from 1,341.50 dollars an ounce late on Friday.

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