RTTNews - Extending yesterday's slide, the U.S. dollar tumbled to fresh multi-month lows against its major counterparts in Asian deals on Friday as concerns about growing U.S. government debt prompted investors to trim dollar assets.
The dollar has remained weak since Standard & Poor's cut its outlook on Britain's sovereign rating from stable to negative, sparking worries that a similar move could come for the United States. The rating agency affirmed 'AAA' long-term and 'A-1+' short-term sovereign credit ratings.
Standard & Poor's credit analyst David Beers said, We have revised the outlook on the U.K. to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term.
According to S&P, the projections reflect more cautious view of how quickly the erosion in the government's revenue base may be repaired, the extent to which the growth in government spending can be curtailed, and accordingly the pace at which historically high fiscal deficits are likely to narrow.
The greenback is the worst performing major currency this month as an increase in Treasury yields and gold prices indicated inflation may accelerate while the U.S. budget deficit widens.
The perceived threat to the United States' top triple-A rating has given the dollar another blow this week.
The dollar surged up in March as investors rushed into the safe-haven greenback during the slide in global stock markets. But as stocks have rallied since then, the dollar has taken a hit as investors have shifted funds into higher-yielding currencies and emerging market assets on hopes the worst of the severe global recession is over.
Although signs of hope in the global economy are helping to support stocks, worries are also growing about the strength of any recovery and whether the shift into riskier asset such as oil is justified.
A weaker dollar is also strengthening Asian currencies, which is bound to hurt the export-dependent continent and further raise doubts among investors about whether a gain of more than 50 percent in Asian shares excluding Japan since early March is excessive.
The dollar fell to a 4 1/2-month low of 1.3956 against the euro during Asian deals on Friday. If the dollar weakens further, it may likely target the 1.40 level. The euro-dollar pair was worth 1.3901 at yesterday's close.
The euro gained 4% against the dollar earlier this month and reached a 7-week high of 1.3723 on May 13. Dismal economic reports, which were released from Europe last week including the Euro-zone industrial production and GDP, weakened the euro 2% from a 7-week high to hit a 10-day low of 1.3425 on Monday.
An unexpected Euro-zone trade surplus report helped the euro bounce back from a 10-day low. Adding to euro's uptrend, reports showed this week that the German investor confidence jumped to a 3-year high in May and the Euro-zone PMI rose more than expected in May, indicating that the worst of the recession may be over.
Thus far this week, the euro-dollar pair has gained more than 3%.
In Asian trading on Friday, the dollar declined to a 6 1/2 -month low of 1.5899 against the pound. The next downside target level for the U.S. currency is seen at 1.60.
The pound dropped 2% against the dollar yesterday after the ratings agency Standard & Poor's revised its outlook on the U.K. to negative from stable.
However, the pound bounced back as traders considered U.K. retail sales report, which showed that sales growth accelerated more than expected in April. At yesterday's New York session close, the pound-dollar pair was quoted at 1.5853.
The pound-dollar pair has appreciated 7% so far this month.
The dollar, which closed yesterday's trading at 1.0937 against the Swiss franc, slipped to 1.0897 during Asian deals on Friday. This set the lowest point for the dollar since January 09. On the downside, 1.08 is seen as the next likely target for the dollar.
The dollar has depreciated 7.2% against the franc since reaching a 1-month high of 1.1744 on April 20.
During Asian deals on Friday, the dollar slumped to a fresh 2-month low of 93.88 against the Japanese yen. This may be compared to Thursday's close of 94.43. If the dollar slides further, it may likely target the 93.56 level.
The dollar's broad slide took it to a two-month low against the yen today after Japanese Finance Minister Kaoru Yosano said that the country is not thinking about intervention in the currency market.
The remarks came as market players have started to suspect that Japanese officials may consider intervening to prevent further yen strength.
The yen's surge to 13-1/2-year peaks against the dollar earlier this year dealt a heavy blow to the country's big exporters, but Japan has refrained from intervention.
The Bank of Japan signaled today that the worst of the global crisis may be over for the world's second-largest economy, which shrank at a record pace in the first three months of the year.
After a two-day policy meeting, the central bank said it had upgraded its view on the ailing economy, saying conditions were still deteriorating but noting that steep declines in exports and output appeared to be leveling out.
The first upgrade in the economic assessment since July 2006 indicates the central bank may be reluctant to further expand its program of buying corporate and government debt, even as deflation looms.
The BOJ board also voted unanimously to keep its overnight call rate unchanged at 0.10 percent.
The dollar-yen pair has been steadily weakening after it reached a 5-1/2 -month high of 101.46 on April 06 on the back of a recovery in stock markets, which has pushed the Japanese currency up. Since then, the dollar has lost more than 7%.
The sell-off in the U.S. dollar is boosting higher-yielding currencies across the board. The U.S. currency fell to a 7 1/2 -month low of 0.7824 against the Australian dollar and a 7-month low of 0.6183 against the NZ dollar. If the greenback drops further, it may likely target 0.80 against the aussie and 0.627 against the kiwi. The aussie-greenback and the kiwi-greenback pairs were worth 0.7798 and 0.6114, respectively at yesterday's close.
The U.S. currency also plunged to a fresh 7-month low of 1.1318 against the Canadian dollar. The next downside target level for the greenback is seen at 1.12. At yesterday's close, the greenback-loonie pair was quoted at 1.1364.
A rise in oil prices helped the Canadian dollar to gain 5% against the greenback thus far this month. Oil prices surged up to a fresh 6-month high of $62.26 yesterday. In Asian deals today, oil hovered above $61 a barrel as disappointing jobs and factory data dented hopes that the economy of the United States, the world's top energy user, was set for a quick rebound.
Investors are now likely to focus on the European session, in which the Italian March retail sales, Swiss April M3 money supply and the U.K. preliminary first quarter GDP reports are expected.
From Canada, the retail sales report for March is due at 8:30 am ET.
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