Turbulence sends dollar to record low, gold and oil to all-time highs
©AFP/File - Joel Saget
LONDON - The dollar plunged to a new trough against the euro Monday, undermined by the collapse of US bank Bear Stearns, which powered oil and gold to record heights as investors sought refuge from turbulence.
Equity markets in Asia and Europe also took a drubbing on fears that more big-name US banks could be vulnerable to the credit crisis that sank Bear Stearns and prompted the US Federal Reserve to resort to emergency measures.
The single European currency soared to a record 1.5905 dollars in Asian trading before falling back to 1.5751 dollars in late European trading, against 1.5669 late Friday.
The dollar was meanwhile trading at 96.90 yen after 99.18 on Friday.
Currency investors ploughed more cash into dollar-traded commodities as a protection from tumbling world stock markets and US recession fears, analysts said.
"The depreciating dollar has meant market participants are looking to US dollar-denominated commodities to hedge against inflation and their forex exposure," said Sucden analyst Nimit Khamar.
World oil prices soared to new peaks near 112 dollars on Monday. New York's main oil contract, light sweet crude for delivery in April, hit a record high 111.80 dollars in early trade before profit-taking set in. It later stood at 107.86 dollars, down 2.35 dollars from Friday's close.
Brent North Sea crude for May delivery fell 2.72 dollars to 103.48 dollars per barrel.
©AFP - Marcel Mochet
Gold too was in demand, with the price of the precious metal jumping at one point to an unprecedented 1,032.70 dollars an ounce.
In a rare weekend announcement, the US Federal Reserve said it was cutting its primary credit rate, offered at the Fed's discount window for institutions "in sound condition," by a quarter point to 3.25 percent.
The surprise move came amid growing concerns about the health of the US financial system following the pressures on Bear Stearns.
The bank, the fifth largest US investment house, was finally bought up by JPMorgan Chase for just 236 million dollars, a fraction of its stock market value of 3.54 billion dollars on Friday.
Analysts said the rate cut by the Fed underscored the extent of the problems facing the world's largest economy, brought on by a housing slump and credit crunch following a wave of defaults on subprime, or high-risk, mortgages.
"The Federal Reserve's first rescue of a broker since the Great Depression has heightened investor fears that the fallout from the credit market crunch has much further to go," noted NAB Capital analyst John Kyriakopoulos.
Added Mitul Kotecha of Calyon: "Although the Fed's measures can be characterised as significant and perhaps even bold, the bottom line is that they are failing to get to the root of the credit problem.
"Estimates on the total losses on mortgage-backed securities continue to rise to between 400 and 600 billion dollars and the question on the economy is not whether it is in recession, but how deep and protracted the recession will be."
The US central bank will once again be in the spotlight Tuesday when its policymakers convene in Washington, where according to Kotecha the market is looking for a cut in the Fed's benchmark federal funds rate of a full percentage point, taking it to 2.0 percent.
©AFP/File - Jung Yeon-Je
But he added that the Fed is confronted with "a lose-lose situation, as a less than one point rate cut will result in market disappointment and an intensification of growth concerns, resulting in a dollar and equity market sell-off, while a one point cut could see a limited market reaction as it will be seen as the Fed trying to stay on top of the curve."
In London currency trading late Monday morning, the euro changed hands at 1.5751 dollars against 1.5669 late on Friday, 152.56 yen (155.46), 0.7856 pounds (0.7748) and 1.5543 Swiss francs (1.5639).
The dollar stood at 96.90 yen (99.18) and 0.9872 Swiss francs (0.9978).
The pound was at 2.0046 dollars (2.0317).
On the London Bullion Market, the price of gold at the fixing was at 1,011.25 dollars per ounce, up from 1,003.50 dollars late on Friday.
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