(Recasts, adds comments)
By Vivianne Rodrigues
NEW YORK, March 20 (Reuters) - The dollar rose to its
highest in one week against the euro on Thursday as investors
sold oil, gold and other commodities, repatriating their cash
back into the beleaguered U.S. currency.
Oil went down as much as 4 percent <CLc1>, dipping earlier
below $99 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 midday trading in New York, the euro was down 1.4
percent at $1.5419, 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 for the year
<EUR=>.
The dollar erased earlier gains versus the yen and last
traded little changed at 98.78 yen <JPY=>, after trading as
high as 100.20 earlier in the session. Traders said a
flow-driven market, and losses on the euro/yen cross weighed
on the dollar.
Against the Swiss franc, the dollar bounced 1.5 percent to
1.0116 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 that 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," American Express Bank
said 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 the 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 Jan
Paschal)
