The euro broke new records above $1.50 against the dollar
on Wednesday, pushing oil and precious metals to fresh peaks,
while weighing on equity markets.
The dramatic moves followed weak US data and comments from
the Federal Reserve which reinforced expectations of further
aggressive US rate cuts.
Dollar weakness was widespread. There were records for the
euro, which climbed as high as $1.5087, and the Swiss franc,
which hit SFr1.0668. By midday in London, the euro was up
0.4 per cent at $1.5035 and the Swissie was 0.5 per cent higher
at SFr1.0693.
The dollar index, a measure of the US unit’s strength
against a basket of currencies, fell to a record low of 74.264.
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Tumbling US house prices and weak consumer confidence overshadowed
rising producer price inflation on Tuesday. Later, the Federal
Reserve’s Don Kohn said slowing growth was a greater
risk than rising inflation.
Mr Kohn said aggressive rate cuts by the Fed in recent weeks
would not forestall a period of economic weakness in the near
term.
He indicated that price pressures were moving up the Fed’s
list of concerns but added: “I expect the run-up in
headline inflation to be reversed and core inflation to edge
lower over the next few years.”
Alan Ruskin, currency strategist at RBS Greenwich Capital,
said: ”Ugly US data has kept up momentum for the Federal
Reserve to ease rates, while the Fed shows it is still willing
to oblige, regardless of the state of inflation.”
The moves in currency markets encouraged buyers of commodities
as the weak dollar made investment in assets priced in the
US currency cheaper.
Oil prices also hit records. Nymex West Texas intermediate
soared to $102.08, before edging back to $101.25. Brent crude
rose to $100.53 as investors hedged against the weaker dollar.
Gold, which is often used as a hedge against inflation when
oil prices rise, hit a fresh peak of $964.70 a troy ounce,
and helped lift other precious metals. Silver rose to $19.43
its highest level since November 1980.
James Steel at HSBC said: ”The combination of higher
prices and an accommodative monetary policy is in our view,
tailor made for gold price appreciation.”
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