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Latest report: Dollar dives after China's hint
Dollar dives after China's hint on diversifying reserves |
The dollar tumbled Wednesday to a fresh low against the euro after China reportedly indicated it might diversify its massive foreign exchange reserves away from the US currency.
The euro barreled through the 1.46-dollar and 1.47-dollar levels for the first time, climbing as high as 1.4731 dollars.
The 13-nation currency eased back to 1.4634 dollars around 2200 GMT, up from 1.4555 late Tuesday.
The dollar slid against the Japanese currency to 112.55 yen, down sharply from 114.72 Tuesday.
The US currency hit a 26-year low against the British pound at 2.1072 dollars and a record low of 0.9091 Canadian dollars.
Meanwhile, the price of gold also jumped higher in early trade London trade, hitting 845.84 dollars an ounce, close to its all-time peak of 850 dollars set in January 1980.
The beleaguered greenback, already under pressure from fears of a US recession and expectations of a further cut in interest rates, had further weakened after comments made by the vice chairman of China's national parliament, analysts said.
Cheng Siwei reportedly said at a conference in China that his country should adjust the structure of its foreign exchange reserves, the world's largest, suggesting that strong currencies ought to be given greater weight.
"This comment, although more confusing than anything else and only presented by a third-tier Chinese official, caused the dollar to sell-off," said analysts at BNP Paribas.
China's foreign exchange reserves reached a record 1.43 trillion dollars in September, and 70 percent of them are dollars, experts say.
"This is the clarion call for all currency reserve managers around the world that the largest holder of US dollars outside the country is seriously thinking of selling them for other currencies," said Andrew Busch at BMO Capital Markets.
Busch, pointing to the tight global credit, said "the only central bank acting to soften the credit blow is the US Federal Reserve as this country remains the epicenter for the problem. Thus, the US dollar comes under pressure and subject to a potential exogenous shock ... like a shift in reserve management."
Market expectations are rising for a further rate cut when the Fed meets on December 11 because of an expected sharp economic slowdown due to a deepening housing slump and a subsequent crisis in the high-risk subprime mortgage sector.
"The market is still quite concerned about the fallout from the subprime mortgage crisis, so a lot of people are anticipating further rate cuts by the Fed," said Daniel Chan, senior investment strategist at DBS Bank.
The Fed last week cut its base federal funds rate by a quarter-point to 4.50 percent to ease tight credit stemming from the housing downturn.
The Reserve Bank of Australia on Wednesday raised its benchmark rate by 25 basis points to 6.75 percent, increasing the currency's yield advantage.
"The dollar was weaker ... as investors focused on diminishing yields on offer in the US as the Fed needs to keep cutting interest rates in response to the subprime fallout," noted NAB Capital strategist John Kyriakopoulos.
In late New York trade, the dollar was at 1.1334 Swiss francs, down from 1.1447 late Tuesday.
The pound was at 2.1012 dollars, up from 2.0874.