The dollar dropped to a record low on the euro for the seventh session in a row on Monday as disappointing U.S. jobs data and concerns about the United States’ ability to fund its current account gap stoked its fall.
The greenback dipped to a three-year low against the yen, thumped to a seven-year low against the Swiss franc and plumbed a fresh five-year low against the British pound.
Analysts said Friday’s jobs data coupled with concerns that U.S. assets would struggle to attract enough foreign capital to offset the downward pressure on the dollar from the huge current account deficit played on investor sentiment.
They noted the latest warning sign had come from a Bank for International Settlements report overnight showing OPEC countries, which mainly earn in dollars, had repatriated funds at an accelerated pace in the first half of this year.
“The market is continuing to focus on the U.S. external deficit,” said Ryan Shea, senior international economist at Bank One.
“The BIS report keeps alive the issue of the funding of the U.S. current account deficit. We get external trade numbers on Friday and in terms of the underlying trend it’s likely to remain bearish for the dollar.”
It has now lost around 16 percent against the euro and more than nine percent against the yen since the start of 2003.
Jobs and rates
The BIS report said money brought home to OPEC countries in the first half of this year exceeded all of 2001 and 2002 combined. Speculation was rife in the financial markets earlier this year that Middle East investors were pulling out of financial centers like the U.S. and UK.
The BIS report also noted that heavy repatriations of overseas deposits by Chinese banks and money flows into the country from foreign banks may make it harder for other governments to finance their deficits.
Asian central banks have been huge buyers of U.S. Treasuries this year as a way of recycling dollars bought to stop their own currencies from strengthening against the greenback.
The dollar posted a one-cent fall against the euro on Friday after U.S. payrolls fell far short of inflated expectations, gaining just 57,000 on the month in November.
The numbers sent Wall Street shares lower and U.S. Treasury yields posted their largest one-day drop since September 11, 2001. U.S. stock futures were pointing to a weaker start on Wall Street later.
“In the past month virtually all U.S. data surprised on the upside so market had high expectations,” said Marvin Barth, currency economist at Citibank.
“Capital flows generally slow down this time of the year and a currency from a current-account indebted country tends to suffer. There is also general aversion to buying dollars in anticipation of a fixed-income sell off - the market is expecting the Fed will change its bias at tomorrow’s meeting.”
The U.S. Federal Reserve holds a one-day Open Markets Committee (FOMC) meeting on Tuesday and the jobs data cemented expectations the Fed will elect to keep rates on hold at their current 45-year low of 1.0 percent.
However analysts have speculated the Fed may drop the phrase “for a considerable period,” when referring in its accompanying statement to how long rates will stay low.
That could signal an earlier-than-expected credit tightening next year and would also be confirmation the Fed was becoming more confident about the U.S. economic recovery.
Analysts are divided over the impact on the dollar from a possible rise in long-term interest rates. Some say it would pressure the dollar as rate hike expectations lead to a sell off in fixed income markets. Others said it would support the dollar as it would make it more expensive to sell dollars for other more high-yielding currencies.
Intervention jitters
The greenback’s decline against the yen came to a stop at 107.50 yen with widespread caution against possible yen-selling intervention by Japanese authorities.
Japan’s top financial diplomat, Zembei Mizoguchi, kept up verbal intervention, saying he did not expect the dollar’s weakness to continue given the strength of the U.S. economy.
However, analysts say the yen could come under further upward pressure if revised Japan growth data for the third quarter, due on Tuesday, is above expectations.
Japan’s economy grew a preliminary 0.6 percent in the third-quarter from the previous quarter.