LONDON (AFX) - The dollar fell back in early trade dented by sharp overnight falls in US equities, sparking concerns of further declines in asset prices amid worries over weakening corporate earnings, dealers said.
A profit warning from Corning hit the US market hard overnight but an after- hours announcement from Compaq, announcing a reduction in its earnings forecast along with job cuts is likely to speed up falls at open today.
Further, fears of a debt default in Argentina had a ripple effect in Latin America and served to exacerbate falls in the US.
The combined effect of the gloomy corporate earnings outlook and the emerging market woes weighed heavily on the dollar, dealers said. US equities futures are already down, dragging the dollar lower across the board, Halifax economist, Steven Halifax said.
"Some are predicting that US assets will be the first to suffer," he said observing that there were very little safe-haven type flows in favour of the dollar despite troubles in emerging markets.
The negative corporate earnings scenario has the market worried over the prospects of economic recovery in the US. The whole atmosphere over global growth prospects has soured and the dollar is taking the brunt of the change in sentiment, he added.
The euro benefited most from the dollar's stumble, pushing past 0.86 usd after struggling at the mid 0.85 usd level for several days. There was little by way of local news to spur the euro on with Germany's final CPI numbers remaining unrevised while a slightly better-than-expected outturn in German retail sales was comforting although of little impact, Pearson said.
Meanwhile, calls for the European Central Bank to cut rates to help euro zone economies continued. This time, it was the Deutsche Institut fuer Wirtschaftsforschung, one of Germany's leading economic institutes, which said the ECB should cut interest rates to 2.5 pct 'quickly' to counter the current economic slowdown. The DIW also slashed its growth forecast for Germany this year to 1.0 pct from 2.1 pct previously.
The call comes at time when the ECB faces heavy critisism for its complacency.
Sterling and the yen also moved higher against the dollar, both breaking out of recent ranges.