Dollar slides after G-20 stimulus pledge

AP News
Posted: Nov 09, 2009 4:41 PM

The dollar slid Monday after the world's leading economies agreed to keep stimulus measures intact for the time being.

The euro briefly pushed back up over $1.50 after finance ministers from the Group of 20 rich and developing countries steered clear from addressing the weakness of the U.S. currency against most of its competitors at a meeting over the weekend. They said they would not yet withdraw economic stimulus measures until they saw proof of sustainable recovery.

The 16-nation euro later traded at $1.4999, compared with $1.4835 late Friday, after briefly touching $1.5011. The British pound climbed to $1.6752 from $1.6602, while the dollar inched up to 89.99 Japanese yen from 89.93 yen.

The U.S. dollar index, which measures the greenback against a basket of foreign currencies, fell more than 1 percent to its lowest level in 15 months.

Investors around the world are seeing the dollar as weaker than other currencies because of low U.S. interest rates, and so they're using it for what's known as "carry trade," to finance purchases of investments in other countries. That trend takes the dollar down when those purchases are made.

In a note prepared for the meeting over the weekend, the International Monetary Fund said the dollar was "now serving as the funding currency for carry trades," and that these trades may be "contributing to upward pressure on the euro."

"Early indications suggest further dollar declines, as the euro broke above last week's highs at $1.4910 and $1.4920 and now looks set to retest the highs of last month at $1.5065 and $1.5070," CMC Markets analyst Michael Hewson said in a Monday research note.

There is little economic data expected this week to give markets direction, but the dollar is likely to remain under pressure due to interest rate differentials, momentum, and "lack of official concern," Brown Brothers Harriman currency analysts wrote in a note to investors Monday.

In other late New York trading, the dollar dropped to 1.0544 Canadian dollars from 1.0768 late Friday, and fell to 1.0079 Swiss francs from 1.0179 francs.