The euro and the British pound rose to fresh highs against the dollar this afternoon as markets continue to fret over the financing of the US trade deficit.
The euro rose 0.4 per cent to $1.2378, setting a new all-time high. Sterling rose to $1.7583, a fresh 11-year high against the dollar.
London analysts noted that the selling deepened as the New York markets opened, suggesting some disappointment in the US over the dollar's lackluster performance overnight.
The dollar was range-bound against the yen, at 107.46 yen. "It's clear that investors remain cautious about closing out short dollar positions, probably due to expectations that further declines are possible into 2004," Dresdner Kleinwort Wasserstein analysts said.
The US current account deficit shrank 3 per cent to $135 billion in the third quarter, the Commerce Department reported yesterday. Despite a smaller gap, capital flows slowed markedly in the third quarter.
Foreign-owned assets in the US increased by $128.2 billion compared with $262.8 billion in the second quarter. Foreigners sold $3.5 billion in US stocks after buying $20.6 billion in the second quarter, while foreign purchases of US Treasurys were $49.9 billion compared with $55 billion.
The report follows data issued Monday by the Treasury Department, which showed foreign investment flows improved modestly in October from September. Still, analysts think the dollar remains vulnerable to a slower pace of foreign investment in US markets.