LONDON, Dec 16 - The dollar plumbed its latest record low on the euro on Tuesday as dollar-supportive sentiment over the weekend capture of former Iraqi leader Saddam Hussein gave way to concerns about the U.S. current account deficit. Figures showing the extent of the U.S. current account gap will be released later in the session, hard on the heels of October capital flows data on Monday which rekindled concerns foreign inflows may be insufficient to fund the shortfall. "Any positive dollar sentiment from the weekend events in Iraq has continued to fade," said Paul Robson, economist at Bank One in London, adding old issues had returned to dog the dollar. "It's the need for the dollar to continue its downtrend in order to rebalance the U.S. economy. Yesterday's capital flows numbers showed that although the U.S. economy saw an inflow in October it was still insufficient to cover the trade side of the equation." The euro rose to its latest record high of $1.2355 . By 0830 GMT it was holding just below the peak at $1.2335, around 0.3 percent up from late New York levels.
The euro was also up against the yen at 132.85 yen , sterling and the Swiss franc. The dollar was steady on the yen, supported by wariness that the Japanese authorities would step in to stop the U.S. currency's descent. It was trading around 107.70 yen , around one yen above a three-year low set last week. It was also trading around a seven-year low against the Swiss franc and a seven-year low against a basket of currencies <=USD>.
OLD THEMES
The market had rapidly concluded the capture of the former Iraqi leader did not signify an end to geopolitical tensions and swiftly turned its attention to the old theme of twin U.S. deficits which has sent the dollar lower this year. Current account data for the third quarter due at 1330 GMT is expected to show a deficit of $136.10 billion, slightly below $138.67 billion in the previous quarter. International capital data from the U.S. Treasury released on Monday showed foreign investors bought a net $27.65 billion of U.S. financial securities in October. "Basically the U.S. needs about $45 billion a month from abroad to make ends meet. But clearly it is not receiving that much," said Kota Kimura, assistant manager at Shinkin Central Bank in Tokyo. Richmond Federal Reserve Bank President Alfred Broaddus said late on Monday the U.S. needed to do what it could to turn the deficit around but that as the rest of the world grew more rapidly the situation would start to be contained, which would help to stabilise the dollar. Tuesday will also see U.S. consumer prices and housing starts for November, both due at 1330 GMT as well as November industrial production at 1415 GMT. Traders said however the market was likely to receive the news in the same way it had responded to other recent U.S. economic data. "If the data is good, the market won't react. If it's bad, then we'll see a sell-off (in the dollar)," said Toshihiro Azuma, a manager at Sumitomo Trust and Banking.
In Japan, Bank of Japan Governor Toshihiko Fukui said the central bank was watching the effects of the strong yen on corporate profits but it may not necessarily be damaging. The BOJ upgraded its view of the economy and left monetary policy unchanged as expected. The bank said the economy was gradually recovering, citing an increase in exports and capital spending.//