-- FOREX-Dollar tumbles as market fears on Iraq deepen --
(Updates with U.S. prices, changes dateline, byline. Previous
LONDON)
By Atiya Hussain
NEW YORK, Dec 23 (Reuters) - The dollar tumbled under the
weight of investors' fears that war against Iraq was increasingly
likely, with the safe-haven Swiss franc racing up to nearly
four-year highs against the U.S. currency on Monday.
War jitters also pushed up the prices of oil and safe-haven
gold, after comments by U.S. officials indicated the possibility
of U.S.-led war against Iraq is looming large.
A White House spokesman said that although the U.S. had not
given up on disarming Iraq through the United Nations, it was now
"entering a final phase in how we compel" Baghdad to comply. Iraq,
meanwhile, insisted it had nothing to hide.
In broad retreat, the dollar traded below 1.42 Swiss francs
<CHF=> to its lowest level in nearly four years, dipped to $1.6060
<GBP=> against the British pound, its weakest since April 2000,
and skidded to a one-month low against the yen.
"The drumbeats of war are sounding louder and louder out of
Washington and London. Markets don't like uncertainty, so you have
this desire for investors to keep funds home, to pare overseas
holdings, flight to quality, safe-haven type of investment
decisions," said Alex Beuzelin, forex market analyst at Ruesch
International.
"If indeed there is conflict in Iraq, the U.S. would
essentially be exposed primarily to the lion's share of the
political risk, financial risk, human life risk, and so the dollar
is seen as bearing the burden of that risk. That's why we've seen
it retreat on a broad basis," Beuzelin added.
In early U.S. trading, the dollar was around 1.4164 Swiss
francs <CHF=>, down 0.50 percent on the day and not far from the
day's low at 1.4137 franc -- levels not seen since February 1999.
The dollar was also off its lows against sterling, which slipped
to trade around $1.5945 <GBP=>.
"The Swiss is probably the main mover today and then on the
back of that there is a broad dollar negative story, with a number
of factors out there like U.S. current account deficit and
Corporate America still struggling," said Paul Mackel, currency
strategist at Dresdner Kleinwort Wasserstein.
Against the yen, the dollar remained pinned near one-month
lows under the psychologically important 120 yen level, trading
around 119.90 yen <JPY=>, down 0.40 percent on the day.
U.S. CONSUMER DATA
U.S. personal income data, in line with expectations gave
little direction to currency markets. Personal income rose 0.3
percent in November, slightly above expectations for a 0.2 percent
increase, while spending was reported up 0.5 percent, in line with
market expectations.
Dealers are looking ahead to the University of Michigan's
consumer sentiment survey at 9:45 a.m. (1445 GMT). Although
dealers said economic releases were likely to play second fiddle
to developments on the geopolitical front, a better-than-expected
number might give the dollar brief respite, dealers said.
The final December Michigan consumer sentiment index is
expected to read 86.9, after a previous reading of 84.2, according
to a Reuters poll.
Volumes were thin as European trade wound down for the
Christmas holiday period and Japanese markets were shut for the
Emperor's Birthday holiday, but that failed to protect the dollar
from war jitters.
The United States said last week Iraq was in "material breach"
of a U.N. resolution that it must disclose its weapons of mass
destruction, increasing the risk of military conflict.
Weekend newspapers were full of stories that the United States
and Britain were readying for an attack as Prime Minister Tony
Blair told British troops to prepare for war and the U.S. military
advanced a build-up that could have more than 100,000 troops in
the Gulf in weeks.
"The dollar weakness theme is continuing from last week," said
Ryan Shea, senior international economist at Bank One in London.
"The focus is the Iraqi situation and people are very nervous
about what will happen."
JAPAN, SWITZERLAND EYED WARILY
The market was also wary as the dollar fell through the 120
yen support level that Japanese authorities might step in to stem
export-damaging strength in their currency, although there was no
evidence of any action.
"The fall below 120 (yen) is likely to prompt more warnings
from Japan that currency moves are inappropriate," said Shea. "We
are certainly getting close to levels where intervention is a
threat."
Switzerland is also concerned that the recent appreciation of
the franc could damage its own already fragile economy. Swiss
National Bank Vice Chairman Bruno Gehrig said in a newspaper
interview published on Sunday that the SNB could lower interest
rates by 50 basis points or sell francs into the market should its
current rally threaten the economy.
The franc was also trading at its strongest level in over two
months against the euro, at 1.4559 francs <EURCHF=>, which the
Swiss central bank is more concerned with than the dollar/Swiss
franc exchange rate.
((Reporting by Atiya Hussain, 646 223 6322; editing by Phil
Berlowitz; Reuters Messaging:
atiya.hussain.reuters.com@reuters.net))
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FRX/ USD/
23-Dec-2002 14:39:30 GMT
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