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By Veronica Brown
LONDON, March 13 (Reuters) - The dollar plumbed fresh depths
on Thursday, hammered to a 12-year low versus the yen below key
support at 100 and record troughs against the euro on mounting
worry about the health of the U.S. economy and financial sector.
The dollar dropped 1.6 percent to a low of 99.77 yen <JPY=>,
according to Reuters data, a mark last seen in late 1995.
It also hit a lifetime low against the euro beyond $1.56 and
near parity against the Swiss franc, as escalating troubles
sparked by the U.S. subprime mortgage crisis eroded confidence
in the world's top reserve currency.
"We are entering dollar crisis mode," said Derek Halpenny,
currency economist at BTM-UFJ.
"Looking at the markets there is a complete loss of
confidence and that's because the markets are concerned over the
U.S. financial sector and ultimately what the Fed will be forced
to do to support that sector," he said.
The sharp moves, also reflected in rising implied dollar/yen
volatility, prompted Japan's Finance Minister Fukushiro Nukaga
to say recent exchange rate moves were a reflection of dollar
weakness rather than yen strength.
He also said Group of Seven countries shared the view that
excessive FX moves were undesirable. []
Halpenny said, however, that Japan was unlikely to
physically intervene in currency markets.
"The authorities aren't going to step in. The last time we
had intervention was in 2003 and 2004 and the conditions in
Japan were entirely different," he said.
"I think the authorities are eager to put that behind them
and move forward and one indication of doing that would be to
stand aside and allow the markets to move freely."
Others were less resolute on what Japan might do.
"Economic conditions have been deteriorating, the market is
pricing in better than even odds that the BOJ will cut rates by
year-end," UBS said in a note to clients. "As such, intervention
could easily become consistent with monetary policy."
The euro rose as high as $1.5610, according to Reuters data,
by 0912 GMT <EUR=> after briefly trimming its gains after
European Central Bank President Jean-Claude Trichet expressed
concern on excess moves in FX rates.
The dollar also hit a record low against a trade-weighted
basket of six major currencies at 71.910 <.DXY> and a historic
low at 1.0057 Swiss francs <CHF=>.
HEDGE FUND WOES
The dollar's slide came despite remarks from U.S. President
George W. Bush on Wednesday that he would like to see a stronger
dollar and expressed concern its falling value was one cause of
soaring U.S. energy prices. []
The embattled currency had rallied on Tuesday after the Fed
said it would lend primary dealers $200 billion in Treasury
securities and accept a wider array of mortgage debt as
collateral to ease tight credit conditions.
But those gains were quickly wiped out as investors were
sceptical on whether the Fed's plan would be sufficient to
revive credit markets and boost a struggling U.S. economy.
Despite the Fed's measures, financial troubles at hedge
funds and other investment funds have continued to materialise.
Carlyle Capital Corp <CARC.AS>, an affiliate of private
equity firm Carlyle Group, is in default on about $16.6 billion
of debt and said its lenders would likely take possession of its
remaining assets. []
Drake Management, which manages nearly $5 billion in hedge
fund assets, told investors on Wednesday it was considering
liquidating all three of its hedge funds, citing "challenging
market conditions." []
Market expectations for aggressive Fed rate cuts next week
have also continued to hamper the dollar.
Investors now see a roughly 80 percent chance of the Federal
Reserve lowering interest rates by 75 basis points from 3.0
percent at a policy meeting next Tuesday. <FEDWATCH>
(Reporting by Veronica Brown; Editing by Mike Peacock)
