London, March 17 (Bloomberg) -- The dollar had its biggest drop against the euro in more than a month after the U.S. gave the United Nations until today to sanction the use of force to disarm Iraq, fueling speculation a war will start as early as this week. The U.S. currency weakened to $1.0838 per euro at 7:55 a.m. in London, its biggest one-day fall since Feb. 13, from $1.0747 late Friday in New York. Against the yen, it fell to 117.74 yen, from 118.32 yen. U.S. President George W. Bush said yesterday after meeting U.K. Prime Minister Tony Blair on Portugal's Azores islands the UN has one more day to show diplomacy can work. Bush has said he doesn't need UN permission to attack, sparking concern the U.S. will shoulder the financial burden of a war and its aftermath.
``Investors are nervous and asking how long is war going to take and who's going to clear up after,'' which is hurting the dollar, said Ian Gunner, head of foreign-exchange research at Mellon Bank in London. The prospect of a war drawing closer also pushed up the price of crude oil, which for April delivery rose as much as 4.4 percent, to $36.95 a barrel. Gold, seen as a haven in times of crises, rose as much as 2.2 percent to $343.75 an ounce. France, Germany and Russia over the weekend called for an emergency meeting of ministers of the UN Security Council to discuss ways to disarm Iraq peacefully. The three countries proposed in a statement that ministers of the 15-nation council convene after chief UN weapons inspector Hans Blix delivers a new report on the Iraqi weapons inspection program tomorrow.
French Offer
French President Jacques Chirac said in an interview broadcast on CBS's ``60 Minutes'' that he's willing to reduce to 30 days from 120 days his proposed schedule for additional inspections. U.S. Vice President Dick Cheney and Secretary of State Colin Powell dismissed the proposal. ``The war seems to be unavoidable and the U.S. may have to go to war without UN support, the worst scenario for the U.S.,'' said Kazutoshi Nakade, who helps oversee the equivalent of $1.7 billion at Sumitomo Mitsui Asset Management Co., Japan's largest fund manager. He holds fewer dollars than recommended by his benchmark. The dollar has weakened 10 percent against the euro and 3.4 percent against the yen in the past six months as the buildup to war prompted some global investors to reduce risk by scaling back purchases of overseas assets. That left the U.S. short of the $1.5 billion a day of foreign capital it needs to offset its current account deficit and maintain the value of its currency.
Gulf War
History suggests the dollar will decline when a war begins. On Jan. 17, 1991, the day a U.S.-led coalition launched an air attack on Iraq to start the Gulf War, the dollar tumbled 2.9 percent against the yen and shed another 4 percent within three weeks. The dollar also shed 2 percent against the German mark that day and lost another 4.5 percent in the following three weeks. The Gulf War cost about $61 billion, $53 billion of which was paid by allies including Japan, Germany, Saudi Arabia and the U.K. Any fall in the dollar against the yen may be limited by expectations Japan will sell its currency for a third month to stem gains that hinder the country's efforts to engineer an export- led recovery. Zembei Mizoguchi, vice finance minister for international affairs, late last week said Japan ``will take appropriate steps whenever necessary.''
The Bank of Japan spent $1.2 trillion yen ($10.2 billion) in January and February to weaken the currency. It spent several hundred billion yen on March 7, after the dollar fell to a seven- month low of 116.35 yen, the Nihon Keizai newspaper, citing no one, said on March 9. Hussein told military aides he'd take the conflict ``to the entire globe'' if Iraq is attacked, Agence France-Presse reported, citing Iraq's state news agency INA. ``Hussein's statement makes the market nervous as well, and adds to the dollar's weakness,'' said Masamichi Koike, senior vice president for foreign exchange at Sumitomo Mitsui Banking Corp. The dollar may fall below 117 yen this week, he said. In other trading, the dollar fell to 1.3539 Swiss francs, from 1.3670 francs. //www.quote.bloomberg.com