(Recasts, adds comments, changes byline and dateline, previous
LONDON)
By Vivianne Rodrigues
NEW YORK, March 20 (Reuters) - The dollar rallied on
Thursday to its strongest against the euro in a week, as
investors took profits from oil, gold and other commodities,
repatriating their cash back into the beleaguered U.S.
currency.
Oil was down almost 4 percent <CLc1>, dipping below $100 a
barrel and commodities such as gold and platinum may post their
biggest weekly losses in years, following a months-long rally.
As investors slashed their "long" exposure to these assets,
they covered "short" positions in the dollar, lifting the
currency from historic lows charted earlier this week, traders
said.
"Commodity markets and currencies are very interconnected
and as we see the system deleverage positions in oil and gold,
the dollar is bouncing back," said Camilla Sutton, a currency
strategist at Scotia Capital in Toronto.
In morning trading in New York, the euro was down 1.2
percent at $1.5437, well off Monday's record high of $1.5904
and chalking up its steepest one-day fall since early February.
Still, the euro is up nearly 6 percent on the year <EUR=>.
The dollar also gained 0.4 percent against the yen to 99.19
yen <JPY=> and bounced 1.6 percent versus the Swiss franc to
1.0124 francs <CHF=>.
"The dollar is holding up remarkably well ... and I am
wondering if the steep fall in commodity prices is causing
stress among leveraged names and creating a short-term demand
for dollars," said Neal Kimberley, head of FX sales at BTM-UFJ
in London.
Kimberley added the proximity of Easter holidays in Europe
and the United States may be leading some investors to reduce
dollar shorts ahead of the long weekend.
Pressure on the euro also mounted after Credit Suisse Group
<CSGN.VX> said it might not make a profit in the first quarter
of 2008 because of write-downs on debt securities. Credit
Suisse shares were down 10 percent in European trading.
"Europe has also been hit by problems in the financial
system," said Sutton at Scotia Capital.
ECB, BOE INJECT LIQUIDITY
With interest rates of just 2.25 percent, which are the
second-lowest among major economies and are set to fall
further, the U.S. currency's potential for gains may be
limited.
Markets are pricing in around a 70 percent chance of a 50
basis point cut at the Federal Reserve's April meeting, adding
to 300 basis points of easing administered since September.
"Low interest rates, set to move even lower, and a wide
(albeit narrowing) external deficit are a bad combination for
any currency, including the dollar," said American Express Bank
in a note.
"The credit crisis remains far from over and a prolonged
U.S. recession looks likely, with GDP growth staying below
trend far into 2009," they said, lowering their dollar
forecasts.
The European Central Bank and Bank of England pumped 15
billion euros and 5 billion pounds, respectively, into the
banking system on Thursday via short-term loans to help tide
banks over the holiday period. For details, see []
and [].
Trading volumes were lighter than usual as Japan closed for
the Spring Equinox holiday and as banks and funds scrambled for
funds over the long Easter weekend. Most of Europe is shut on
Friday and Monday. U.S. markets will close on Friday.
(Additional reporting by Jamie McGeever; Editing by Tom Hals)
