Dollar sinks to lowest since last fall vs euro, pound, others on hopes of global recovery

Dollar at lowest vs euro, pound since last fall

NEW YORK — The dollar tumbled broadly Monday, dropping to its lowest points since last fall against the euro, pound and other currencies, as signs of recovery emerged from data on manufacturing from around the world.

Stocks jumped in Europe and the U.S. Bad signals from economic reports and poor earnings tend to help the dollar as investors seek safety, often in U.S. government debt; good news and stronger equities often correspond with a drop in the greenback’s value and a surge in equities, emerging-market currencies and other “riskier” investments.

“The enhanced prospects for growth has cast a pall over the U.S. dollar,” said Brown Brothers Harriman currency analysts.

The 16-nation euro soared to $1.4408 from $1.4250 late Friday, peaking at $1.4445, the highest point for the common currency since last September. The British pound rocketed up to $1.6922 from $1.6686, hitting its highest level since last October at $1.6986.

The dollar rose to 95.31 Japanese yen, meanwhile, from 94.79 late Friday. The yen is also considered a “safe haven” currency. When they feel safe taking risk, investors are borrowing the dollar and yen, whose corresponding interest rates are effectively zero, and buying up riskier, higher-yielding currencies or commodities, said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.

“People who invested in dollar assets feel comfortable now looking for riskier assets with more returns, (since) the world’s not going to end tomorrow,” said Joseph Trevisani, chief market analyst at FXSolutions.

The U.S. dollar index, which measures the greenback’s performance against a basket of currencies that includes the yen and euro, slid to its lowest point this year.

The dollar could lose 5 to 10 percent of its value over the next year, Woolfolk said, as the Federal Reserve will probably keep interest rates at their level between zero and 0.25 percent until summer 2010.

“Will it be problematic for the economy? Absolutely not,” he said. A weaker dollar helps American manufacturers export and sell goods abroad, as they’re more competitively priced. He also said a weaker dollar may help rein in the difference in labor costs between the U.S. and other countries, and could keep more manufacturing jobs from being outsourced.

Raising interest rates means assets post higher returns for investors, which typically boosts a currency.

On Monday, the Institute for Supply Management trade group said its manufacturing index rose to an 11-month high of 48.9. Readings above 50 signal growth. That mirrors improvements in the manufacturing sector in China, Britain and the euro zone.

A survey of China’s manufacturing sector hit a 12-month high of 52.8, while a British report said the country’s industrial sector was growing again. A euro zone survey was revised to an 11-month high.

The U.S. government also said construction spending rose a seasonally adjusted 0.3 percent in June — another sign of recovery in the beleaguered housing sector.

That builds on the vast improvement in gross domestic product declines seen last week. The Commerce Department said then that GDP fell 1 percent in the second quarter, compared with a 6.4 percent decline in the first quarter and a 5.4 percent decline in the fourth quarter of 2008.

Stock indexes in Britain, France and Germany closed up 1.5 percent or higher, while only Japanese shares slipped of the major Asian equities benchmarks.

In the U.S., the Dow Jones industrial average closed up 1.3 percent, and the broader Standard & Poor’s 500 index gained 1.5 percent, closing above 1,000 for the first time in nine months.

The New Zealand and Australian dollars, which are strongly correlated with commodities prices, hit 10- and 11-month highs against the dollar as the price of oil, agricultural products and precious and base metals rose.

Emerging-market currencies such as the Brazilian real, Mexican peso, Turkish lira, Polish zloty and South Korean won were also higher against the dollar.

The dollar also hit its lowest point since October against the Canadian dollar, another currency tightly correlated with commodity prices, and a bottom for the year versus the Swiss franc.

In recent trading, the dollar fell to 1.0675 Canadian dollars from 1.0789 late Friday, and dropped to 1.0600 Swiss francs from 1.0689 francs.