By Eric Burroughs
TOKYO, March 7 (Reuters) - The dollar slid to a record low
against the euro and Swiss franc on Friday, with its sell-off
deepening on worries that strains in U.S. credit markets will
compound the economy's fall towards a recession.
It also hit a record low against a basket of major
currencies and a three-year low against the yen.
Worries about the financial system's health intensified as
mortgage lender Thornburg Mortgage and bond fund Carlyle failed
to meet margin calls and received default
notices.[]
Traders cited widespread talk of investment banks clamping
down on the credit they provide hedge funds, while some
portfolio managers have started to frantically sell
high-quality U.S. mortgage bonds to raise funds.
The latest flare-up of market volatility has stoked
expectations the Federal Reserve could cut rates before its
next meeting later in the month, especially if the U.S. jobs
report later on Friday shows companies shed workers in February
for a second month.
Rumours of an emergency Fed meeting swirled through
markets.
"It feels like a lot of people have dollars to sell," said
Gerrard Katz, head of North Asia currency trading at Standard
Chartered in Hong Kong. "I wouldn't say the move is exhausted
yet by any means."
Analysts and traders said they were now looking for the
dollar to fall to levels such as $1.60 to the euro, 1.00 Swiss
francs and 100 yen in coming days and weeks.
Investors see a chance the Fed could slash rates by a full
percentage point in March, which would further undermine the
dollar, following an unusually aggressive 1.25 percentage
points of cuts in January to 3 percent.
The Fed's response to the U.S. economy's downturn and the
housing market crisis stands in sharp contrast to the European
Central Bank, which kept rates on hold at 4 percent on
Thursday. The ECB played down the prospects of a rate cut and
did not express concerns about the euro's strength.
Data on Thursday showing that U.S. home foreclosures rose
to record highs in the fourth quarter gave investors more
reasons to sell the dollar. Friday's jobs data is forecast to
show an employment gain of 25,000 in February. []
The euro pushed up to $1.5405 <EUR=>, the highest level
since its launch in 1999 and up slightly from late U.S. trade.
The dollar fell to an all-time low against a trade-weighted
basket of major currencies at 72.812 <.DXY>. In just a month,
the dollar index has shed more than 5 percent.
The dollar struck a new three-year low of 102.45 yen, but
as some traders covered short positions it got a lift to 102.60
yen <JPY=>. The dollar hit a record low against the Swiss franc
at 1.0210 <CHF=>.
LOSING CONFIDENCE
Confidence in the dollar and U.S. assets has taken a
battering.
Fed Chairman Ben Bernanke has highlighted the economy's
downside risks and mentioned the possibility of smaller banks
failing.
"Recent developments suggest the credit market turmoil is
far from subsiding, and renewed fears about the severity of the
problem is prompting investors to dump the dollar," said a
director for a margin currency broker.
The ECB on Thursday left interest rates unchanged at 4
percent. It cut euro zone growth forecasts, but unveiled higher
consumer price forecasts, and this focus on price risks helped
push back expectations for a cut in interest rates.
ECB President Jean-Claude Trichet did not make specific
comments on the euro in his news conference. []
Some traders had thought Trichet would do so after his
remarks earlier this week noting the U.S. stance that a strong
dollar was in its interest.
"The ECB not voicing concern about the euro's strength,
along with Bernanke's recent cautious comments, appear to
suggest that major central banks are in agreement on allowing
the dollar to weaken to support the U.S. economy," said a
senior dealer at a European bank.
(Additional reporting by Chikako Mogi; Editing by NEil
Fullick)
