Dollar Slips on Subprime Worries....

Discussion in 'Wall St. News' started by S2007S, Jul 11, 2007.

  1. S2007S


    Dollar Slips on Subprime Worries
    July 11, 2007 10:57 a.m.

    The dollar is weaker against its main rivals early Wednesday after hitting a fresh all-time low against the euro in overnight trading on concerns over the U.S. subprime mortgage debacle.

    The euro was at $1.3758 from $1.3730 late Tuesday, while the dollar was at 121.81 yen compared with 121.97 yen. Sterling was at $2.0333 from $2.0273. The dollar was at 1.2020 Swiss francs from 1.2048 francs late Tuesday.

    Sharp declines in U.S. Treasury yields -- the 10-year note briefly dipped under the psychological 5% level -- have also weighed on the dollar, pushing the euro to $1.3787 overnight, its new high. Sterling is also having a field day against the dollar, shooting to as high as $2.0351, a fresh 26-year record.

    Among the only bright spots for the dollar is its position against Canada's dollar, with the U.S. currency pushing above C$1.06 in overnight trading after falling to a 30-year low of C$1.04444 earlier in the week. But Canadian currency weakness is partly based on fears that what is bad for the U.S. economy may prove even worse for Canada, so the move provides little solace for dollar bulls.

    Profits warnings from U.S. housing and retail sectors, including Home Depot and Sears, and announcements by ratings agencies that they may downgrade subprime debt, have been the catalysts for sharp declines in the dollar over the past two days. These factors are likely to keep weighing on the greenback, analysts said.

    "None of this bodes well for the near-term outlook for the dollar, and we'd expect to see further dollar weakness," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.

    There are no important U.S. data out Wednesday, so the dollar may be driven by the performance of U.S. stocks and bonds. Attention will also be paid to Federal Reserve Bank of Philadelphia President Charles Plosser, who speaks on housing prices and monetary policy at 11 a.m. EDT.

    Meanwhile, the yen is up against the dollar but also slightly higher against the euro, suggesting Japan's currency has found strength independent of the simple dollar weakness story.

    Japan's government said Wednesday that its current account surplus grew at a much faster pace than expected in May, boding well for economic growth in the second quarter.

    The surplus in the current account expanded 31.1% to 2.134 trillion yen during the month before seasonal adjustment, the Finance Ministry said. That's wider than the 19.8% expansion expected by economists surveyed.

    "Yen positives are starting to stack up," analysts at ING in London noted in an email following the Japanese data release.

    Despite the yen's gains against the euro and the dollar, analysts noted that the carry trade has so far held up rather well during this period of dollar weakness. They pointed to the continued strength of the Australian dollar and the Brazilian real, both of which are popular currencies in carry trades because of the high yields offered on them.

    But other carry trade destination currencies have fallen, including the New Zealand dollar, and analysts say the jury is still out on whether the apparent U.S. credit meltdown could eventually cause carry trades to unwind significantly.

    "In many ways it feels like we are at a pivot point," said Alan Ruskin, head of international strategy at RBS Greenwich Capital. "Stability will breed confidence in the carry trade, much as panic will breed panic."
  2. Once again not a big deal

    I've hearing about the so called impending subprime disaster for the past three months yet the market is making new highs.