WORLD FOREX: Dollar Drops On US Stock Rally On Citi Rescue
The dollar fell to a two-week low against the euro, and to three-session lows against the U.K. pound, Swiss franc and Australian dollar.
U.S. federal regulators Sunday agreed to inject an additional $20 billion into Citigroup and back up to $306 billion worth of the bank's assets in a bid to help stabilize the firm, whose shares shed 60% of their value last week, and the broader financial system.
That sent the Dow Jones Industrial Average up more than 500 points at one point Monday, before the index finished almost 400 points higher. Higher stocks often send traders to higher-yielding, riskier assets from their funding currencies - the dollar and yen.
The euro rose as high as $1.2930; the U.K. pound rose to $1.5173; the Australian dollar rose to $0.6531. The dollar also fell as low as CHF1.1950.
In another sign of greater risk-taking among currency traders, the euro gained to a one-week high against the yen as well, to Y125.50. The relatively safer and lower-yielding yen offered the battered dollar its only reprieve Monday among major market currencies. The buck gained to a three-session high of Y97.08.
Late Monday afternoon in New York, the euro was at $1.2914 from $1.2574 late Friday, while the dollar was at Y97.02 from Y95.85, according to EBS. The euro was at Y125.30 from Y120.54. The U.K. pound was at $1.5155 from $1.4878, and the dollar was at CHF1.1967 from CHF1.2215 late Friday.
Markets also continued to feel the bounce from Friday's rally, when news broke that President-elect Barack Obama would appoint Timothy Geithner as his nominee for Treasury secretary and Larry Summers as director of the National Economic Council.
The appointments were confirmed by Obama on Monday.
The resolution of at least one uncertainty in markets sent equities and confidence surging Friday.
Investors largely ignored Monday data releases in the euro zone and U.S.
Sales of U.S. existing homes fell in October by 3.1% to a 4.98 million annual rate from a 5.14 million annual pace a month earlier, as the sinking economy kept buyers on the sidelines. Meanwhile, prices dropped by the most since records began in 1968. The median home price plunged 11.3% to $183,300 in October from $206,700 a year earlier.
Other disappointing released overnight showed German business confidence waned sharply in November, dropping to its lowest level in almost 16 years.
However, given the data and the global economic outlook, analysts remain cautious despite Monday's action.
"Friday I was optimistic for equities and for buying risk (selling yen and U.S. dollar). Today, we've had a big move already in this direction. Some caution is warranted from here," said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago.
Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York, added: "A softer bias for the dollar is likely this week, though we see the [Citi] announcement as a temporary reprieve for markets rather than a permanent solution."
Elsewhere, Russia's central bank allowed the ruble to shed 1% of its value Monday for the second time this month, endorsing expectations it will conduct a staged weakening, rather than a one-off devaluation of the currency, at least for now.
The market had expected the move, which the bank executed by widening the ruble's trading band against a dollar/euro basket by 30 kopecks in each direction.
-By Riva Froymovich, Dow Jones Newswires; 201 938-5063; riva.froymovich@dowjones.com
(Lidia Kelly in Moscow contributed to this report.)
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(END) Dow Jones Newswires
November 24, 2008 16:45 ET (21:45 GMT)
Publié le 24 novembre 2008 Copyright © 2008 Dowjones
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