The dollar fell nearly one percent against the Swiss franc on Monday as growing indications al Qaeda may have planted last week's deadly bombs in Madrid encouraged a flight to safe-haven investments. Spain announced at the weekend that police had recovered a videotape purportedly from al Qaeda saying the Islamic militant group carried out the attacks in retaliation for Spain's support for the U.S.-led war against Iraq. The dollar also fell nearly one percent against the Norwegian crown , half a percent against the euro, and a third of a percent against sterling.
"Risk aversion and market positioning are dominating as it looks less likely the attacks in Madrid were a domestic event," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez. Nevertheless, he added that since many short dollar positions had already been unwound last week, market reaction to growing indications of al Qaeda involvement had not been enormous. Anger over the Spanish government's handling of the attack, which killed 200 people, helped Spain's opposition Socialists to victory in a sensational election upset. Spain's prime minister-elect Jose Luis Rodriguez Zapatero, who criticised the former administration's support for U.S. foreign policy, announced on Monday he intended to withdraw Madrid's 1,300 troops from Iraq.
U.S. ISOLATION CONCERNS
The euro pushed to session highs above $1.2290 in the wake of Zapatero's announcement as investors viewed the U.S. position in Iraq as more vulnerable. "News that Spain will now withdraw its troops from Iraq leaves the U.S. more exposed and is a negative for the dollar," said Lee Ferridge, head of global currency strategy at Rabobank. Investors were looking out for U.S. economic indicators due later in the day and a Federal Reserve meeting on Tuesday. The Federal Reserve Bank of New York's Empire State survey, which sometimes acts as a precursor to larger indicators such as the Philadelphia Fed's manufacturing survey, is due at 1330 GMT. Industrial production figures are due at 1415 GMT.
The dollar was steady at 110.80 yen as investors speculated Japanese authorities would continue to sell yen ahead of the end of Japan's business year on March 31. "Investors feel it is safe to buy dollars against the yen now as they are betting Japanese authorities will not allow the yen to fall until Japanese companies close their books," said Mitsuru Sahara, vice president at UFJ Bank's forex dealing group in Tokyo. But Sahara said expanding short positions in the yen were a concern, saying the dollar could come under pressure after April. Speculators in yen futures increased their net short positions to 34,516 contracts last week -- the highest level since early August last year -- from the previous week's 22,312.///