LONDON, March 31 - The dollar tumbled more than one percent against the euro, yen and Swiss franc on Monday, extending the previous week's losses, as concern grew that the U.S.-led war on Iraq would be prolonged, complicated and costly. Dollar sentiment was hurt by worries the conflict could escalate after Washington warned Syria on Sunday to abandon its support for "terrorist groups" and Palestinian group Islamic Jihad said suicide bombers had been sent to support Iraqi fighters. U.S. warplanes continued to pound Baghdad on Monday but the momentum of ground troops appeared to slow at the weekend after stiff resistance from Iraqi troops. "Everything seems to be very negative for the dollar and people just came in this morning and wanted to sell," said Rob Hayward, senior currency strategist at ABN Amro. "Everything we know about the Gulf seems to indicate the conflict is going to be more drawn out than thought before."
The dollar fell beyond $1.09 per euro after automatic sell orders were triggered on the break of $1.0860. The U.S. currency also stumbled to a two-week low below 1.3530 Swiss francs and 118.60 yen . For a snapshot of the latest developments in the Iraq crisis, please click on [IQ/UPDATE].
WAR PREMIUM
A long war will also exacerbate the United States' precarious funding situation. The U.S. budget is already in deficit and the country needs to attract some $2 billion of foreign capital every working day to offset its current account deficit. "The war premium is increasing again. The market is coming to the more realistic expectation that nothing is going to happen quickly in the current environment and the chances are it could be quite drawn out," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez. U.S. stocks were poised for hefty losses after major European and Asian bourse tumbled by more than three percent as investors worried about the damage a prolonged war could wield on an already fragile global economy. A European Commission indicator on Monday showed economic sentiment in the euro zone fell to a six-year low in March as business and household morale suffered badly even before the war broke out in Iraq. U.S. data due later includes the Chicago purchasing management index for March which is expected to fall to 50.7 from 54.9 in February. The nationwide ISM manufacturing index is due on Tuesday and is expected to fall below the 50 mark which divides expansion from contraction. "Add an increase in the war premium and weak data and you've got a pretty soft dollar environment," said Kotecha.
JAPAN INTERVENTION CLUES
Japan said on Monday that it had stepped up its efforts to prevent an export-crimping rise in the yen over the past month, selling 1.131 trillion yen in the currency market. The intervention brings cumulative yen-selling to around 2.4 trillion yen after authorities spent 513 billion yen in February and 678 billion yen in January. The March figure will include the last two business days in February, and market participants widely suspect Japan conducted intervention on those two days. A ministry official said Japan acted alone and that the aim was to control volatility in the market which had been gyrating on concerns about the U.S.-led war in Iraq.//