Jim, the US dollar is getting creamed>>
Dollar declines further amid fears on deficit
By Jennifer Hughes in New York, Tony Major in Frankfurt and Christopher Swann in London
The dollar faced renewed downward pressure on Tuesday, falling to fresh three-year lows against the yen and within sight of record lows against the euro, amid mounting concern over the scale of the US current account deficit.
Economists believe stronger US growth will not prevent the slide in the dollar, since it would lead to a further widening of the current account deficit, expected to reach $570bn this year.
The dollar dropped below Y110 for the first time in three years, prompting market reports that a subsequent rally was the result of further intervention by the Bank of Japan.
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Earlier, Sadakazu Tanigaki, Japan's recently-appointed finance minister, had warned Japan would take "appropriate measures" to stem irregular currency moves.
The Ministry of Finance has spent at least Y13,500bn ($120bn) this year to limit the yen's appreciation, which it fears will damage exporters' competitiveness.
The euro rose to within sight of June's $1.193 lifetime high, briefly climbing above $1.18 on Tuesday and triggering fears that the single currency's persistent rise could curb German export growth and derail the eurozone's fragile upturn.
Ebbing confidence in the dollar pushed the US currency down across the board and it hit a seven-year low against the Canadian dollar.
"People are selling the dollar because it's the path of least resistance at the moment," said Marc Chandler, currencies strategist at HSBC. "The rule of thumb seems to be 'when you feel mush, push.'"
China's renminbi, pegged tightly to the dollar at Rmb8.27, came under further pressure with futures contracts implying the dollar would weaken by more than 6 per cent in the next year to about Rmb7.75. It was the first time the contracts have implied the renminbi would be worth more against the US currency than the Hong Kong dollar is.
Investors have begun betting any revaluation in China's strict currency peg will prompt the Hong Kong Monetary Authority to examine its currency peg, which values the US dollar at HK7.79. The speculation has recently forced the HKMA to intervene, buying US dollars on a number of occasions.
The dollar has been on the defensive since last month's Group of Seven meeting in Dubai, which called for more currency flexibility.
This was widely seen as an attack on Asian governments, which have been intervening to prevent a fall in the dollar. At the weekend Wim Duisenberg, ECB president, said a further dollar decline was unavoidable.
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