LONDON, Dec 29 - The beleaguered dollar hit record lows against the euro and was down over half a percent against the yen on Monday as security worries and concerns over the U.S. current account deficit kept the greenback under pressure. Dealers said there were no fresh factors behind the latest dollar sell off although some said a rise in the Nikkei share average <.N225> above 10,500 was prompting some yen-buying. In a holiday-thinned market, the euro rose as high as $1.2483 , surpassing its previous all-time high of $1.2470 hit last Wednesday. "Price action is dollar-driven and in a holiday-thinned market there has been nothing to turn dollar bearish sentiment around," said Aziz McMahon, currency strategist at ABN Amro. "The U.S. economy is growing strongly but the current account deficit remains a concern, particularly when Asia is looking a more attractive place to invest."
The dollar was holding near its lowest level since early December at 106.94 yen at 1036 GMT, just above a three-year trough around 106.75, with the market wary that Japanese authorities could intervene to prevent further dollar weakness. The euro has gained almost 19 percent against the dollar since the start of the year as investors have warmed to the view that a recovering economy will not help the United States fund its current account deficit, which runs at around five percent of gross domestic product. The discovery of mad cow disease in the United States encouraged traders to shun the greenback. U.S. officials on Sunday expanded the recall of more than 10,000 pounds of beef to eight most western states and Guam. "Mad cow disease is another reason to sell dollars," said one trader in London. "Everyone is long euros and they would be a fool not to be."
DATA VACUUM
There is no major economic data out of the United States on Monday, with only a handful of indicators this week including the Chicago PMI and consumer confidence. "Sentiment for the dollar remains poor across the board," said Tim Fox, market strategist at National Australia Bank. "There are ongoing terrorist concerns and the mad cow scare from last week is still an excuse to sell dollars as well." Boosted by hopes that a good start for Wall Street next year will also boost Tokyo stock prices, the benchmark Nikkei average closed at a seven-week high of 10,500.62, the highest close since November 10. Players suspect the Bank of Japan (BOJ) intervened on Friday when the dollar fell to a low of 106.93 yen. Some said the BOJ may have stepped in earlier on Monday when the greenback fell to that level again. On Friday, Finance Minister Sadakazu Tanigaki said that Japan would act on exchange rates if the market strayed from economic fundamentals. The Ministry of Finance also said on Friday that the BOJ had agreed to a government request for short-term funding to soothe worries it may soon run out of funds to intervene in the currency market.
The BOJ policy board agreed to issue three-month repo pacts for up to 10 trillion yen ($93 billion). A report in Monday's Financial Times quoted a senior European Central Bank official as saying the decline in the dollar had been relatively sharp and the euro's performance over the next four to eight weeks could influence the outlook on interest rates. "The rapid rise of the euro brings an element of uncertainty into our forecasts," the Financial Times quoted a senior official as saying. "We must examine the whole picture."//