The dollar dropped to a record low against the euro yesterday as the US subprime mortgage market crisis continued to damaged sentiment on the greenback.
The dollar's decline was broad as well as deep. It tumbled to a 2½-year low against a basket of six major currencies, largely on concerns growing problems in the credit market that could lead foreign investors to steer clear of dollar-denominated paper.
Subprime loans are loans extended to borrowers with poor credit histories.
"We remain confident in our short dollar strategy as the US subprime story has not run its course," said BNP Paribas currency analysts in a note.
By mid-afternoon, the euro was up 0.3 per cent on the day against the dollar at $1.3785, having set a record high earlier of $1.3799.
The euro also hit a lifetime peak at 168.83 yen, according to electronic trading platform EBS, before trading back down to 168.78, up 0.3 per cent on the day.
"With inflows into US corporate bonds being the most important contributor to funding the US current account deficit, reduced risk appetite for US paper, symbolised by widening swap spreads, will negatively affect the dollar. We believe the key beneficiaries will be the European currencies," the analysts said.
US data showing the trade deficit widened as expected in May had marginal impact on the dollar.
"The equity market has helped the dollar a good deal since this morning when we were at the highs. We have retraced a decent amount," said Brian Taylor, managing director of foreign exchange trading at M&T Bank in Buffalo, New York.
"We've seen the equities market rally and when that happens, we see people putting on a little more risk," he added.
Market chatter was rife about a large investor trying to prevent the euro from reaching $1.3800 because of an options position at that level, dealers said.
A lower-than-expected US retail sales growth number today would almost certainly be the impetus the market needs to push the euro above $1.3800 and closer to the psychologically important $1.40. The market's focus for most of the week has been the dollar's sell-off . - (Reuters)
