The dollar slumped to record lows against the euro on Monday as the initial frenzy over the capture of former Iraqi President Saddam Hussein ebbed and investors focused on prevailing U.S. economic problems.
“The sensational images of Saddam Hussein’s capture failed to evoke any sensational rally in the dollar due to the imbalance between the symbolic meaning of the capture and its practical implications on currency markets,” said Ashraf Laidi, chief currency analyst at MG Financial Group in New York.
“It also remains unclear as to what extent the attacks on coalition troops will cease after Hussein’s capture. Most importantly, the capture will neither alter the U.S. twin deficits, nor alter the state of unattractively low U.S. yields relative to their Australian, British, Canadian and Eurozone counterparts,” he added.
The euro climbed to a record high of $1.2323 against the dollar before trading back down to $1.2303, up 0.1 percent on the day. The dollar had gained more than a cent from last week’s record low against the euro after news of Saddam’s capture.
The single European currency fell slightly against the Japanese currency to 132.38 yen. The dollar stood at 107.58 yen, down 0.1 percent from Friday’s New York close.
Against the Swiss franc, the dollar slid to 1.2608 francs after rising to an intraday high of 1.2808 francs following Saddam’s capture over the weekend. Sterling, meanwhile, was trading marginally lower at $1.7441, but above intraday lows of $1.7361. The Aussie dollar rose to a six-year high of US$0.7445, before drifting back down to US$0.7431.
U.S. capital flows data
News of a surge in U.S. capital inflows in October had little impact on the greenback. The Treasury Department said foreigners’ net purchases of U.S. financial securities rose to $27.65 billion in October from $4.19 billion in September.
Foreign purchases of U.S. Treasury bonds and notes totaled $12.03 billion in October, up from $5.56 billion in September, it said in its monthly statement on international capital flows.
Foreigners also sold fewer U.S. stocks in October, with total net sales of $1.25 billion, compared with outflows of $6.29 billion in September.
“The October TIC (Treasury international capital) data should be a net positive for the dollar today as they failed to confirm our worst fears that foreign investment into the U.S. had finally turned negative,” said Michael Woolfolk, senior currency strategist at Bank of New York.
“Still, the monthly inflow remains below the $42 billion needed to finance the U.S. current account deficit of roughly $500 billion, and thus suggests that the long-term decline in the dollar remains in place,” he added.
Last month’s numbers, showing foreigners turned a cold shoulder to U.S. assets in September, sent the dollar reeling.
Concerns over the sustainability of the current account gap mean flows in and out of U.S. assets are a key focus of currency traders. So far, a recovering economy has done little to help the United States fund its widening deficit.
The deficit, currently at about 5 percent of gross domestic product, is the broadest measure of a U.S. global trade.
In an audience with the Charlotte Chamber of Commerce on Monday, Richmond Federal Reserve President Alfred Broaddus said he hoped rapid growth in U.S. trading partners’ economies would improve the current account situation and thus help stabilize the greenback.