LONDON, May 12 - The dollar plunged on Monday, hitting its weakest level against the euro and the Swiss franc in over four years as markets doubted the United States' determination to defend its "strong dollar" policy. Such expectations arose on Sunday after U.S. Treasury Secretary John Snow said the dollar was helping U.S. exporters, while calling the U.S. economy "soggy." In reaction, the U.S. currency fell one percent to beyond $1.16 per euro in European trade, bringing its losses to almost 10 cents in the past month, and within sight of the euro's January 1999 launch rate around $1.1750.
"Even though Snow affirmed the "strong dollar" policy, he tied it with the state of the economy," said Paul Mackel, foreign exchange strategist at Dresdner Kleinwort Wasserstein in London. "He said the economy was "soggy", so this is indicative that neither he nor the administration would be expected to support a rising dollar." Snow's comments followed a spate of bad economic data releases in recent weeks that had already undermined the dollar. More data is due at 1500 GMT, when the Federal Reserve Bank of Kansas City releases its April manufacturing index. The dollar also fell three-quarters of a percent to below 116.35 yen and hit multi-year lows against the Australian and New Zealand dollars for a third straight session.
The dollar's decline, which is pushing up other currencies worldwide, prompted the Turkish central bank to intervene in the market to stem the lira's rise and protect the economy. The yen's rise against the dollar also kept traders wary that Japanese authorities could intervene to stem the yen's unwanted strength. However, Bank of Japan governor Toshihiko Fukui declined to comment on the yen's appreciation when asked about it on the sidelines of a Bank for International Settlements (BIS) meeting in Basel.
DOLLAR WEIGHED DOWN BY SNOW
On the euro's side, euro zone policy makers have sounded relaxed so far about the euro's rise on the foreign exchanges, but investors were keen to hear whether a meeting of the region's finance ministers on Monday and Tuesday would produce signs of disquiet at the pace of the move. Veiled hints of some discontent appeared on Monday with an unnamed European Union diplomat saying that euro zone finance ministers were concerned about the gap between U.S. and euro zone interest rates.
The relatively high interest rate returns on euro assets are a key driver of the single currency's strength by attracting investors worried about the paltry U.S. yields. But Britain's top central banker Sir Edward George quashed any expectations of a concerted effort to cap the euro's strength, saying that the world's central bankers expressed no undue concern over the recent rise of the euro against the dollar during the BIS meeting in Basel. "There is little risk of intervention to cap the euro at this time," said Mansoor Mohi-uddin, chief currency strategist at UBS Warburg in London. Data from the Commodity Futures Trading Commission's Commitments of Traders report, released on Friday, showed speculators had extended net IMM euro futures long positions to the largest since November 12, 2002, during April 30 to May 6. Dollar bears reckon the euro will likely edge towards the record high around $1.19 traded shortly after its launch in January 1999.//