The week's dollar sell-off continued today, with the greenback hitting a fresh 12-month low.
An accelerating economy in China was the latest indicator to investors that the worldwide slowdown is drawing to a close, and they shunned the "safe" dollar in favor of gold, which hit an 18-month high, as well as other commodities and riskier currencies.
The dollar has tumbled throughout the week, dropping nearly 2 percent against the euro. On Friday morning, the euro rose to $1.4600 from $1.4585 late Thursday, after earlier hitting a new 2009 high of $1.4634.
The British pound, meanwhile, rose to $1.6699 from $1.6665, while the dollar fell to 90.32 Japanese yen from 91.74 yen, its lowest point since February.
The dollar index fell to a 12-month low against a basket of major currencies, as it has every day this week in American trading. It fell as low as 76.5 against six major world currencies that includes the euro, yen, Cana dian dollar, British pound, Swedish krona and Swiss franc. That's its lowest level since last September
Investors have been favoring foreign currencies as stock markets rose steadily since the Group of 20 finance officials pledged last weekend to maintain government spending, low interest rates and expansion of the money supply in order to buck up the global economy.
Those moves could help boost economic activity and liquidity in financial markets, increasing investors' appetite for assets around the world at the expense of the dollar, which is widely considered a safe haven.
Moreover, the dollar is increasingly being used as a "funding currency" in the carry trade in place of the yen, which has traditionally filled that role, said Matthew Strauss, senior currency strategist at RBC Capital in Toronto.
That means investors are borrowing dollars in order to buy higher-yielding currencies - for example, the Brazilian real, against which the dollar has dr opped 1.7 percent this week - earning the difference between the returns of the real and the low cost of borrowing the buck. The U.S. key interest rate stands at a range near zero, with the
Federal Reserve likely to leave it there "for a very long time," Strauss said. Brazil's key rate is 8.75 percent.
That could weigh on the dollar going forward, as it dragged on the yen in the years earlier this decade when it was used to fund carry trades. Strauss sees the dollar at $1.52 versus the euro by the end of 2010.
There are also statements of concern from certain central banks - China, Brazil, Russia - that are weighing on the dollar. Those countries efforts' to diversify their reserves away from the dollar are "much more verbal than action at the moment," said Strauss. But Ashraf Laidi, chief market strategist at CMC Markets in London, said the Chinese were buying up gold, a traditional hedge against inflation and a weak dollar, helping drive it to an 18-month high at $1,013.7 an ounce. Oil, another inflation hedge, rose past $72 a barrel on the New York Mercantile Exchange.
On Friday, meanwhile, investors favored riskier trading as the Chinese economy showed signs of strength. Official Chinese data said industrial production grew faster in August, while retail sales surged more than 15 percent.
"There are no signs of any slowdown in the real economy," said
UBS currency analyst Geoffrey Yu.
In the U.S., Treasury Secretary Timothy Geithner on Thursday reiterated that the economy is stabilizing, and the government can begin winding down emergency support programs for the banking sector that were enacted a year ago during the height of the financial crisis.
In other trading, the dollar fell to 1.0361 Swiss francs from 1.0387 francs, and dropped to 1.0724 Canadian dollars from 1.0790 late Thursday.
