A falling US stock market has hit the dollar in late London trading, after major currencies hardly moved for much of the day, analysts said. "There are three factors (behind the afternoon's drop in the US currency): stocks, stocks, and stocks," said Nick Parsons, currency strategist at Commerzbank. Steve Barrow, strategist at Bear Stearns, noted that in recent trading sessions, "we seem to just trade stocks" as the New York currency and stock markets comes into action in London's afternoon.
The current 165 drop in the Dow Jones Industrial Average has prompted euro/dollar to jump to 1.0875, not far off the 1.0910 level which is its recent high. While stock markets are falling globally, the record US current account deficit means the dollar suffers disproportionately when its home equity market declines. If foreign investors do not continually, and increasingly, put their money into US assets -- such as equities -- the current account gap can only be bridged by a falling currency, analysts explained. ///www.fxcentre.com