Dollar plummets as credit worries linger


The dollar fell again towards record lows against the euro and the Swiss franc on Friday as investors remain worried about widening damage to financial firms from the credit crisis.


The dollar slipped back into this week's losing streak as short-covering subsided and rumours on Thursday that Lehman Brothers could suffer a fate similar to the near collapse of Bear Stearns hurt sentiment, traders said. Lehman called the rumours "totally unfounded".


News that investment bank Morgan Stanley could see its $11 billion-plus (Dh40.4 billion) credit line backing its commercial paper program shrink under $5 billion (Dh18.35 billion) as banks grow cautious about extending credit added further caution towards the dollar.


The US currency was also under pressure against the yen as Japanese exporters and institutional investors repatriated overseas earnings and investments before Japan's fiscal year-end on Monday.


But many Japanese market players stayed on the sidelines and limited their participation in other asset markets before closing their books for the current quarter and business year, making price movements choppy.


The yen showed little reaction to news that Japan's core consumer inflation in February rose more than expected and scored the biggest increase in a decade.


Analysts said other data on Friday showed the economy was not improving and the Bank of Japan remained more likely to cut interest rates than raise them amid the global market turbulence.


"The market focus is more on the fate of the dollar, so the Japanese data didn't draw much attention," said Kengo Suzuki, a currency strategist at Shinko Securities.


The euro edged up to $1.5790 from around $1.5766 in late US trade on Thursday, turning back towards its record high of $1.5905 after making a pause from sharp gains made earlier this week.


Traders said the single currency could test $1.60 in the next few weeks as investors focus on the widening yield appeal of the euro over the dollar.


A series of weak data this week stoked U.S. recession fears and supported expectations for a big Federal Reserve rate cut, while the European Central Bank president's remarks that euro zone rates were at the right level cooled expectations for a near-term ECB rate cut.


The dollar fell to 0.9920 francs from around 0.9947, edging back towards an all-time low around 0.9630 francs hit earlier this month.


The US currency fell to 99.55 yen from around 99.75 yen, staying in sight of a 13-year low of 95.77 yen.


Japanese core consumer prices rose 1.0 per cent in February from a year earlier, above expectations for a 0.9 per cent increase and the biggest increase since March 1998.


Other data showed a mixed picture of the economy with the February jobless rate edging up to 3.9 per cent and retail sales in the month rising more than expected from a year earlier. (Reuters)