Democratic Underground - Dollar hits new lows on Russia fears

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The under-fire dollar slumped to yet another all-time low against the euro in European morning trade on Wednesday as renewed oil price strength and Tuesday’s comments from the Russian central bank continued to weigh on the greenback.

Alexei Ulyukayev, first deputy chairman of the Russian central bank, hinted that Moscow would step up its ongoing policy of shifting more of its $113.1bn of foreign exchange reserves from dollars into euros. This in turn raised the spectre of Asian central banks with higher reserves still following suit.

“A move to say 40 per cent euro from possibly around 30 per cent is a notable amount and highlights the support the euro may be deriving at present when you consider other central banks may also be diversifying out of the dollar,” said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi.

Neil Mellor, currency strategist at Bank of New York, raised the prospect of a potential domino effect: “Talk of central banks readjusting their reserves to encompass a greater euro weighting has been rife in the foreign exchange markets for quite some time, along with speculation that OPEC members may shift to euro-denominated oil sales.

“A dam can only take so much pressure. Russia’s stated intent to review its reserve weightings, in favour of the euro once again, could well lead to similar announcements by its counterparts across the world.”

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The net result was that the dollar lurched 0.8c lower to a fresh low of $1.3167 against the euro, aided by the breaching of technical barriers. The greenback also fell 1.2c to a nine-month low of $1.8807 against sterling, 0.7 centimes to a near nine-year low of SFr1.1504 against the Swiss franc, 0.6c to a 12-year low of C$1.1801 against the Canadian dollar and 0.25c to a nine-month low of $0.7886 against the Australian dollar.

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However Kaoru Yosano, policy chief of Japan’s ruling Liberal Democrat party, appeared to pour cold water on this scenario, saying: “The effects of currency intervention would only be short-lived and limited.”

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