US dollar continues to slide

According to the script posted on The Sydney Morning Herald, it is said that: The US dollar dropped further against major currencies as a jump in pending home sales added to optimism about the US economy and investors traded in their "safe-haven" positions for higher-yielding assets.

Hope of an economic recovery has undercut the dollar as investors trade it in for foreign equities and bonds. Worries over US deficits and debt loads also added to investors' wariness of the greenback.

The 16-nation euro surged to $US1.4318 from $US1.4171, earlier trading at a five-month high of $US1.4330. Meanwhile, the British pound jumped to $US1.6572 from $US1.6446 and reached $US1.6596 earlier in the session, its highest point since November. The dollar fell to 95.66 Japanese yen from 96.52 yen late Monday.

A report showing pending US home sales logged the biggest monthly jump in nearly eight years in April added to investors' confidence about the economy.
Better-than-anticipated data on manufacturing, consumer spending and construction spending sent the Dow and other major indexes up more than 2 per cent on Monday. Both the Standard & Poor's 500 and Nasdaq composite indexes rose to their highest levels this year.

A market rally continues to be negative for the US dollar, as it drives investors to riskier assets.
Investors also drew some confidence Tuesday from reports on May auto sales that showed month-to-month improvements despite bankruptcy filings by Chrysler and General Motors.
Oil prices briefly passed $US69 per barrel in a week-long rally as investors are betting that increased demand for goods will jump-start a demand for oil. They also often buy crude as a hedge against a dropping dollar.

Meanwhile, massive government borrowing to cover record federal deficits is worrying investors. The Obama administration has estimated a record $US1.84 trillion for the current budget year.

The fear is that rising government debt, which requires more borrowing and bond sales, could trigger rising long-term interest rates and possibly inflation when the economy recovers. Inflation would eat away at the dollar's value, and foreign investors may no longer be willing to buy up all the US government's debt.
In other late trading in the US on Tuesday, the dollar fell to 1.0608 Swiss francs from 1.0703 francs, and slipped to 1.0811 Canadian dollars from 1.0892 Canadian dollars.

Gold for current delivery closed at $US983.20 per troy ounce Tuesday on the New York Mercantile Exchange, up from $US978.60 Monday.

2009. US Dollar continues to slide [online]. Available from: http://business.smh.com.au/business/us-dollar-continues-to-slide-20090603-buou.html [Assessed 07 June 2009]