- Forbes -
The U.S. dollar reached its lowest point against the euro this year due to a myriad of forces including rising global stocks and commodities prices, low interest rates, and investors diversifying out of Treasury debt and into other assets including U.S. stocks with the Dow Jones industrial average
approaching 9500 in late afternoon trading.
Stocks in Asia and Europe saw big gains, and gold topped $1,000 an ounce. (See "Stocks, Commodities Rally After Long Weekend.") Oil also gained 4.9%, or $3.31, to $71.33, on the New York Mercantile Exchange, due in part to Goldman Sachs affirming its year-long outlook. By midday trading one euro traded for $1.45, meanwhile the Dollar Index, which tracks the greenback against a basket of currencies, fell to its lowest level since September of 2008.
"It isn't as if the fundamentals are better in Europe," said Jessica Hoversen, a foreign exchange and fixed income futures analyst at MF Global. "There are other factors outside of economic growth taking hold in the market."
Japan's special drawing rights holdings hit a record $18.5 billion, from $3 billion in July. SDRs are the currency of the International Monetary Fund and other international institutions. It's a basket of currencies composed of the dollar, euro, sterling and yen in a fixed weighting determined by the IMF and World Bank every five years.
One of the reasons cited for the rise is an increased in commitment in overseas aid, but Hoversen noted that to a certain degree it speaks to the general demand for the dollar, and that scares the market. "It doesn't necessarily mean diversification away from the dollar, but there is a heightened sensitivity about the topic," Hoversen said.
Currency investors have been obsessed with the prospect of central banks diversifying out of the dollar. (See "Spotlight On The Dollar.") The fixation has been fueled by meetings under the G20/G8 framework, as well as candid comments from some of the largest reserve managers, namely Russia and China. The prospects of a massive diversification are low though, at least in the short-term, because most of the alternatives, including using SDRs as a global reverse currency are unrealistic.
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