The US Dollar Weakens

Dollar Weakens on Concern Crude Oil Prices May Prolong Slowdown
July 9 (Bloomberg) -- The dollar fell the most against the euro in a week on concern crude oil prices may prolong the slowdown of the U.S. economy.
European Central Bank President Jean-Claude Trichet said the level of inflation is ``worrying.'' South Korea's won rose against all of its major counterparts on speculation the government intervened to boost the currency.
``The resilience of oil prices makes an extended rally in the dollar unlikely,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York.
Against the euro, the dollar fell 0.3 percent to $1.5721 at 12:25 p.m. in New York, from $1.5670 yesterday. The U.S. currency dropped 0.3 percent to 107.23 yen, from 107.50. The yen was little changed at 168.56 per euro, compared with 168.45.
Trichet told the European Parliament in Strasbourg, France, today that risks to price stability have ``intensified'' over recent months. He also said it's important for the U.S. to keep repeating support for a strong currency.
The dollar has fallen 11 percent against the euro since September, when the Federal Reserve made the first of seven reductions in its target rate for overnight lending between banks, now at 2 percent, to prevent the housing slump and credit market losses from plunging the U.S. economy into a recession.
Oil prices are 88 percent higher from a year ago. Crude oil for August delivery increased as much as 1.7 percent to $138.28 a barrel after Iran said it carried out a test of a missile capable of hitting Israel. The exercise, reported on Iranian state television, raised concern that Israel will attack the Mideast's second-biggest oil producer.
Oil and Currencies
The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time in the past year, according to Bloomberg calculations based on the correlation of their value.
``We've not broken the back of the current uptrend of oil prices so far,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon. ``That's not favorable for the dollar.'' The firm is the world's largest custodial bank, with more than $23 trillion in assets under administration.
The Canadian currency increased 0.8 percent to C$1.0110 per U.S. dollar, and the Norwegian krone rose 0.4 percent to 5.1146 versus the dollar. Commodities such as crude oil and gold account for 54 percent of Canada's exports, while Norway is the world's fifth-largest oil supplier.
Dollar Index
The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, fell 0.5 percent to 72.640.
South Korea's won strengthened beyond 1,000 per dollar for the first time in two months. The government probably sold more than $12 billion dollars in exchange for the won since the end of May to support the local currency and stem inflation, according to Jung Chan Ho, a currency dealer at Shinhan Bank, a unit of South Korea's second-biggest financial group. The won increased as much as 3.5 percent to 996.62 per dollar.
South Africa's rand climbed 1.1 percent to 7.6544 per dollar, a one-month high, on speculation a proposed merger between MTN Group Ltd., Africa's biggest mobile phone company, and India's Reliance Communications Ltd. may boost foreign capital inflows into South Africa.
Traders raised bets that the ECB will raise borrowing costs again to curtail 4 percent annual inflation, twice policy makers' 2 percent target. The implied rate on the December Euribor interest-rate futures contract rose 0.02 percentage point to 5.12 percent.
`No Bias'
Trichet said last week that he has ``no bias'' for monetary policy after increasing the ECB's main refinancing rate a quarter-percentage point to 4.25 percent.
The yield advantage of two-year German bunds over comparable-maturity Treasury notes rose to a one-week high of 1.97 percentage points, making the European securities more attractive to investors.
``The risk is that the ECB will raise interest rates again,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``That will keep the euro relatively supported.''
The dollar rose against the euro yesterday after Fed Chairman Ben S. Bernanke said he may extend an emergency-loan program for securities firms into next year. Bernanke added in a speech in Arlington, Virginia, that the Fed is committed to financial stability.
He and U.S. Treasury Secretary Henry Paulson are scheduled to testify before Congress tomorrow.