New York, Jan. 14 (Bloomberg) -- The dollar fell to a three- year low against the euro and dropped against the yen on expectations a war with Iraq is moving closer, deterring foreign investors from moving their money to the U.S. U.K. Foreign Secretary Jack Straw said if the Middle Eastern country does not disarm, ``action will be taken'' to enforce a United Nations resolution demanding Iraq give up its weapons of mass destruction. Prime Minister Tony Blair yesterday signaled evidence for an attack may come ``in a few weeks.'' ``The nervousness on Iraq is going to dominate'' and push the dollar lower, said Jan Amrit Poser, head of bond and currency research at Bank Sarasin & Cie. in Zurich. The bank has been selling dollars to buy euros for the 40 billion Swiss francs ($29 billion) it manages, he said. The dollar traded at $1.0579 per euro from at 8:04 a.m. in New York, compared with $1.0540 late yesterday. It weakened as far as $1.0597 per euro, the lowest since Oct. 27, 1999. The U.S. currency dropped for a third day against the yen, to 118.19 yen per dollar, from 118.99, after reaching a four-month low of 118.01. Inspectors will report to the Security Council Jan. 27 on whether Iraq is cooperating with demands to reveal its weapons. U.S. President George W. Bush said he will use force if Iraq defies demands to disarm. Blair said yesterday he is ``quite sure'' Iraq has arms. The U.S. has ordered more than 150,000 troops to the Persian Gulf, and the U.K. has sent fighter planes to Jordan, prepared warships and called up reservists.
Vulnerable
``Certainly with the troop movements that we've hearing about, and the Blair comments, it's turning up the heat again,'' said Peter Stoneham, a senior currency analyst at Thomson Financial in London. ``There does seem to be an air of negativity out there at the moment'' for the dollar. A war with Iraq may slow the U.S. economy and swell the budget deficit, making U.S. assets less attractive to foreign investors, analyst said. At the same time, a growing U.S. current account deficit, the broadest measure of international trade, requires the U.S. attract about $1.4 billion of foreign capital each day in order to sustain the currency's value. The 12-nation European economy and Japan have surpluses in their current accounts. In the past six weeks, the dollar has fallen 6 percent against the euro and 3.6 percent against the yen. During the 10 weeks after Iraq invaded Kuwait on Aug. 2, 1990, the U.S. currency dropped about 15 percent against the yen It declined a further 7 percent in January 1991 after U.S. air strikes began. The dollar's decline may be limited by expectations a Commerce Department report will show U.S. retail sales last month rose 1.5 percent, the most in 14 months, based on the median forecast of 63 economists surveyed by Bloomberg News. Excluding cards, sales probably added 0.3 percent last month, after a 0.5 percent increase in November. The report is released at 8:30 a.m. New York time. //www.quote.bloomberg.com