Dollar plummets against majors

The greenback dropped to the weakest level this year against the euro before a report forecast to show U.S. manufacturers boosted output, reducing demand for the relative safety of the dollar. The yen surged toward the highest level in seven months against the dollar after Reuters cited incoming Finance Minister Hirohisa Fujii as saying Japan’s new government is opposed to intervening in currency markets unless swings become excessive. The Dollar Index traded near the lowest in one year after a Commerce Department report showed U.S. retail sales increased 2.7 percent last month following a revised 0.2 percent drop in July, adding to signs the recession is ending. “Higher-yielding currencies and riskier assets are in demand as risk appetite returns,” said Masashi Hashimoto, senior foreign exchange analyst at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan’s biggest banking group. The EUR/USD is currently trading at $1.4695 as of 8:51am, London Time.

Bank of England Governor Mervyn King said yesterday policy makers are considering lowering the rate they pay financial institutions to hold reserves at the bank to encourage lending. “Sterling is the currency most at risk among the majors in our view,” analysts led by Hans Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a research note yesterday. “The news and data from the U.K. have added to the bearish outlook.” The Bank of England currently pays financial institutions 0.5 percent to hold reserves at the central bank. While the central bank is boosting its reserves through asset purchases under its so-called quantitative-easing program, King said he doesn’t want them to grow too much. The GBP/USD is currently trading at $1.6485 as of 9:04am, London Time.

The dollar struck a one-year low against a basket of currencies on Wednesday, staying vulnerable as investors moved to riskier assets on growing signs of an economic recovery. Market participants increased bets on stocks and commodities, encouraged by better-than-expected U.S. retail sales and New York manufacturing data, while Federal Reserve chairman Ben Bernanke said the U.S. recession was most likely over, though he also warned the recovery would be slow.

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