Euro losing out to dollar in safe-haven stakes
- 12 October, 2000 12:37
The euro struggled to regain its
poise Thursday after a scary fall saw it plumb its lowest levels
since the Group of Seven rode to its aid three weeks ago.
The euro lurched to $0.8640 as a U.S. bank sold into thetwilight zone between New York and Tokyo trading and triggered awave of stop-loss sales.
Earlier on Thursday the euro had risen as high as $0.8765 asdealers assumed the dollar had most to lose from sharp falls inU.S. equities.
But events did not go to script with European sharessuffering just as much if not more and investors reluctant toabandon the security of the dollar -- which has been in afive-year uptrend -- for the euro.
"After all, we are talking about a currency that has donenothing but fall since its birth. It's hard to think of the euroas a safe-haven," said a European bank dealer.
A QUESTION OF SAFETY
Indeed, the euro seemed to have been singled out as the leastsafe safe-haven of the major currencies, with both sterling andthe Swiss franc favoured over it.
The euro slumped to a five-month low on the pound around$0.5910/20, while coming within a whisker of its all-time recordtrough against the franc.
It also hit a post-intervention low against the yen around93.10/20 yen with traders still concerned at the potential forJapanese repatriation of loss-making investments.
Meanwhile, the dollar took an early spill on the yen butfound solid support at 107.50 to bounce modestly to 107.77.
The dollar was periodically nauseated by the wild seesawingof Wall Street, where the Nasdaq shed 2.2 percent and the DowJones Industrial 1.05 percent.
But sentiment was helped after the bell when Advanced MicroDevices Inc reported better than expected profits, helping theNasdaq futures contract gain 35 points on Globex.
TENSIONS GO GLOBAL
Despite the bounce dealers were spotting signs of strainright across global markets, some of which brought back painfulmemories of past financial crises.
Among others was a huge 13 percent rise in the Chicago BoardOptions Exchange Market Volatility Index to a five-month high.
The index, which measures volatility in various S&P option contracts, is regarded as a sort of sentiment index for how muchrisk investors see in equities going forward. The higher thereading, the greater the fear.
Similarly, swap spreads between super safe Treasuries andcommercial paper were widening sharply, pointing in part toincreased risk aversion amongst investors.
And commodity prices were enjoying a broader rally apart fromjust oil as investors looked for any sort of safe haven. Theinfluential Commodity Research Bureau index has jumped 2.5percent in the past three sessions to a 32-month high.
Emerging currencies were also under pressure in an echo ofthe Asian crisis in 1997/98, though in this case the strains werefar less as most are no longer fixed against the dollar.
Dealers had thought all this tension could take its toll onthe dollar given the United States' reliance on massive foreigninflows to fund its trade deficit.
However, despite the odd jitter, events were not working outthat way with the dollar's Finex trade weighted contract actuallyrising since Wednesday to stand not far from its peak of the past13 years.
Analysts suspected this was in some part due to the fact thatthe dollar has a history of doing well in times of tension.
"Wall Street's woes are not particularly beneficial for theeuro," Robert Rennie, currency strategist at Westpac in Sydney,told Reuters Television.
"Short term there's probably much more of a flight to quality trade and traditionally the beneficiary of a flight to qualityis, almost perversely, the U.S. dollar."