RTTNews - In early deals on Monday, the U.S. dollar surged up to new multi-day highs against its major counterparts as a plunge in stock prices prompted investors to seek the safety of the world's most liquid currency.
Asian shares fell today, pulling further back from eight-month highs hit earlier this month, as investors fretted over whether the global economy had improved enough to justify another rally.
Following weak Asian equities, European stocks are also trading lower today.
Investors bought back the dollar as a drop of more than $1 in oil prices, which had hit eight-month highs last week, prompted profit taking in commodity-linked currencies such as the Australian dollar.
The dollar was also boosted by supportive comments from Russian Finance Minister Alexei Kudrin at the weekend's G8 summit.
After a weekend meeting in southern Italy, finance chiefs from Group of eight said they believed their economies are stabilizing but recovery from the credit crisis remained shaky. Ministers also said they have started to consider how to unwind the rescue steps for their economies once recovery is certain.
While the G8 communique made no reference to the dollar, Russian Finance Minister Alexei Kudrin said on the sidelines of the meeting that the dollar's role as the main reserve currency was unlikely to change in the near future.
Kudrin added that fundamentals of the Dollar are still in good shape and said it was too early to speak of an alternative reserve currency. Kudrin rushed to reassure investors of Russia's confidence in the dollar just days after his boss, President Dmitry Medvedev, questioned its global status, joining China's central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.
Kudrin's remarks came ahead of the first summit of leaders of Russia, China, India and Brazil on Tuesday in the Urals city of Yekaterinburg, at which the leaders are expected to discuss issues including foreign reserve diversification.
Leaders of the so-called BRICs nations- Brazil, Russia, India and China- may use their first summit this week to press the case that their 15 percent share of the world economy and 42 percent of global currency reserves should give them more influence over global financial policies.
The dollar rose to a 6-day high of 1.3865 against the euro during early deals on Monday. If the dollar advances further, it may find resistance around the 1.381 level.
Media reports said today that the euro came under selling pressure after the U.K. Daily Telegraph reported on its website that Germany's top industrial group has warned that Germany's credit crunch is deepening.
Adding to euro's slide, the Eurostat said Eurozone employment decreased a seasonally adjusted 0.8% sequentially to 1.22 million persons in the first quarter, compared with a 0.4% fall in the previous quarter.Year-on-year, employment declined 1.2% in the first quarter, after a flat reading in the previous quarter.
The dollar jumped to an 11-day high of 1.3808 against the euro on June 08 on concerns about the pace of recovery in the economy after a report showed on June 05 that the unemployment rate in U.S. rose to 9.4%, the highest level since August 1983. This news has raised fresh concerns about the pace as well as magnitude of economic recovery.
But the dollar reversed direction in European deals on June 08, as the euro rebounded following a report showed that the Euro-zone sentix investor confidence improved more than expected in June.
The dollar extended its slide in the subsequent days on the back of strong equities and lost 3% to hit a 6-day low of 1.4179 on June 11. Thereafter, the dollar edged up. An upbeat U.S. consumer confidence report and a dismal Euro-zone industrial production report, which were released on Friday helped the dollar to creep further higher. At Friday's New York session close, the euro-dollar pair was quoted at 1.4007.
Overall, the dollar has appreciated 0.26% against the euro last week.
In early trading on Monday, the dollar climbed to a 5-day high of 1.6308 against the pound. The next upside target level for the dollar is seen at 1.581.
The pound tumbled today after the Confederation of British Industry said that there is no real recovery in U.K. until 2010.
The British economy is showing stabilization, but it will not be until the beginning of 2010 that there will be a return to growth, the Confederation of British Industry or CBI said.
The business lobby said the GDP would flatten out in the second half of this year, underpinned by low interest rates and quantitative easing. It expects modest growth to resume during the first three months of 2010, with the growth rate gradually picking up next year.
After hitting a 13-day high of 1.5805 against the pound on June 08, the dollar weakened 5% and touched an 8-day low of 1.6623 on June 11 on speculation that the U.K. economy was on the road to a gradual recovery.
Reports showed last week that U.K.'s manufacturing output rose for the second straight month in April and the nation's house price balance in May reached its highest level since November 2007.
But the dollar regained momentum on Friday and closed the week's deals at 1.6445 against the dollar.
The dollar, which closed last week's trading at 1.0804 against the Swiss franc strengthened to a 6-day high of 1.0914 in early deals on Monday. On the upside, 1.099 is seen as the next target level for the U.S. currency.
The franc plummeted as the Federal Statistical Office reported a 0.3% monthly fall in Swiss producer and import prices in May, while economists were expecting a 0.1% rise. Year-on-year, the index recorded a decline of 5%, larger than the expected 4.7% decrease.
On a monthly basis, both producer and import prices dropped 0.3% each in May. Compared to May 2008, producer prices were down 2.9% and import prices dropped 8.9%.
Thus far, the dollar has appreciated more than 2% against the franc from a 1-week low of 1.0652 hit on June 11.
The dollar soared to a 1-week high of 98.59 against the yen at 2:25 am ET. But the dollar declined thereafter and it is currently trading at 98.25 against the yen, with 97.3 seen as the near term support level. The dollar-yen pair closed last week's trading at 98.37.
The yen also edged higher against other major currencies today as Japan's trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders.
The yen rose to a 6-day high of 136.16 against the euro and 90.08 against the franc and a 4-day high of 160.12 against the pound.
The yen also jumped against commodity-related currencies namely the aussie, the kiwi and the loonie, as the crude oil prices fell to around $71 a barrel today.
U.S. crude fell 81 cents to $71.23 a barrel at 4:41 am ET. Brent crude for July, which expires later in the day, dipped 66 cents to $70.26.
Traders kept a close watch on Iran where contested election results sparked a weekend of violent protests.
Supporters of Iran's defeated presidential candidate plan a rally in Tehran on Monday to protest against the re-election of Mahmoud Ahmadinejad, which has sparked two days of violent protests in the capital.
Iran is the world's fifth-largest oil producer and its coastline flanks the Strait of Hormuz, a choke point at the southern end of the Gulf through which around 40 percent of the world's seaborne oil trade passes.
The yen climbed to a 5-day high of 78.62 against the Aussie, 11-day high of 87.06 against the loonie and a 4-day high of 62.18 against the kiwi.
Investors are now likely to focus on the North American session, in which the results of the New York Federal Reserve's empire state manufacturing survey is slated for release at 8:30 am ET.
At 9:00 am ET, the Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for April.
The National Association of Homebuilders' is scheduled to release the results of their survey on homebuilders' confidence at 1 pm ET.
Chicago Federal Reserve Bank President Charles Evans is due to speak on the current crisis before the Executives Club of Chicago Joint Committee in Chicago at 8 am ET.
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