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Friday in Asia, the U.S. dollar and the Japanese yen plummeted against their major counterparts as a recovery in corporate earnings and improved prospects for the global economy revived demand for riskier assets.
The dollar and the yen are viewed as safe-haven currencies and tend to attract buying when worries about the global economy and financial markets flare up, but can come under pressure when such concerns recede.
Positive bottom-line results from Dow components Travelers (TRV) McDonald's (MCD), Merck (MRK), 3M (MMM), and AT&T (T) helped the Dow Jones Industrial Average to close 1.3% higher on Thursday.
Adding to the positive tone, New York Fed President William Dudley said the Federal Reserve may not lose money on the emergency programs it put in place to fight the financial crisis.
After the U.S. markets closed yesterday, online retailer Amazon.com Inc. said its third quarter profit surged 68% over last year, boosted essentially by higher sales. The company's quarterly earnings breezed ahead of the Street consensus, as did quarterly revenues.
Following a positive close on Wall Street on the back of a series of upbeat earnings reports, the Asian markets opened higher today.
Japan's Nikkei 225 was up 0.6%, Korea's Kospi Composite rose 0.7%, Hong Kong's Hang Seng Index gained 1.6%, China's Shanghai Composite Index had added 1.9%, Australia's S&P/ASX 200 was up 0.9% and New Zealand's NZX-50 climbed 0.3%.
The dollar, which closed yesterday's trading at 1.5027 against the euro, fell to 1.5062 during Asian deals on Friday. This set the lowest point for the dollar since August 15, 2008. On the downside, 1.55 is seen as the next target level for the U.S. currency.
The greenback weakened beyond $1.50 versus the euro for the first time in February 2008 and plunged to a record low of 1.6040 in July and stayed near this level until August 2008.
After the September 15, 2008, bankruptcy of Lehman Brothers Holdings Inc. froze the credit markets, the dollar strengthened as investors sought the safety of U.S. government debt. The dollar jumped to a 2 - 1/2 -year high of 1.2331 against the euro in October 2008.
But the dollar weakened thereafter as the global stocks and commodities rebounded on signs that the worst of the crisis is past. Thus far, the dollar has lost more than 18%.
In Asian trading on Friday, the dollar slipped to a 6-week low of 1.6680 against the pound. This may be compared to yesterday's close of 1.6625. If the dollar weakens further, it may target the 1.674 level.
After hitting a 5-month high of 1.5710 against the pound on October 13, the dollar has dropped 6%.
Against the Swiss franc, the dollar plummeted to a new 15-month low of 1.0035 in Asian deals on Friday. If the dollar-franc pair falls further, it may reach the parity rate. The pair was worth 1.0051 at Wednesday's New York session close.
The U.S. currency has declined more than 18% against the franc since it reached a 1- 1/2 -year high of 1.2301 in November 2008.
As the dollar tumbled across the board, policymakers around the world are voicing worries a weak dollar will dampen their still-shaky economic recoveries. A falling dollar hits exporting countries because they find it more difficult to sell their products to the U.S.
The dollar's current slide has recalled memories of the coordinated intervention in September 2000. During this time, the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Canada intervened to stop an alarming drop in the euro. The central banks bought billions of euros with dollars and yen. The risky move helped halt the euro's slide.
Today, however, any successful intervention to stem the dollar's fall would require not just support of U.S. authorities. It would also have to involve the Chinese, who have kept their currency artificially low against the dollar. That helps them boost their exports to the United States.
Central Bankers around the world have started expressing concern on the dollar's slide. Earlier this week, Canada's Finance Minister Jim Flaherty expressed worries the U.S. dollar could derail his country's recovery, while Brazil's Finance Minister Guido Mantega has announced a 2 percent financial transaction tax on foreign investment flows. That was intended partly to curb the rise in the value of the Brazilian real against the dollar.
European Central Bank president Jean-Claude Trichet has for weeks been warning that "excessive volatility" in exchange rates could damage economic and financial stability.
A weak dollar also raises the cost of commodities such as oil, which are priced in the U.S. currency. In Asian deals today, U.S. crude futures were steady just above $81 a barrel.
NYMEX crude for December delivery fell 4 cents to $81.15 a barrel at 10:10 pm ETT, after settling down 18 cents on Thursday. London Brent crude rose 13 cents to $79.64 a barrel.
The yen dropped along with the dollar today on speculation the global economy is exiting recession.
During Asian deals on Friday, the yen plunged to new multi-month lows of 137.87 against the euro and 91.23 against the franc. The next downside target level for the yen is seen at 91.56 against the Swiss currency and 138.7 against the euro. The euro-yen and the franc-yen pairs were worth 137.26 and 90.93, respectively at yesterday's close.
Against the pound, the yen slumped to a 6-week low of 152.79 in Asian trading on Friday. On the downside, 153.3 is seen as the next target level for the Japanese currency. At yesterday's close, the pound-yen pair was quoted at 151.87.
In Asian deals on Friday, the yen dropped to near yesterday's 1-month low of 91.73 against the US dollar. If the yen slides further, it may target the 92.6 level. The dollar-yen pair was worth 91.35 at Thursday's close.
The yen has been declining against the dollar after it reached an 8 1/2 -month high of 88.03 on October 07. Since then, the yen has lost 4%.
Investors now look forward to the European session, in which the German October IFO business climate report, U.K. third quarter preliminary GDP and the Euro-zone August industrial new orders data are expected to influence trading.
From the U.S., the National Association of Realtors is scheduled to release its report on existing home sales for September at 10 am ET.
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