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Dollar drops as korea backs away Original Source Link: (May no longer be active)
http://www.usatoday.com/money/world/2005-02-22-dollar-korea_x.htmhttp://www.usatoday.com/money/world/2005-02-22-dollar-korea_x.htm
Dollar drops as Korea backs away
NEW YORK (Reuters) — The dollar tumbled Tuesday as markets grew concerned about the likely impact of South Korea's plan to diversify its reserves out of U.S. assets, pushing the currency below key technical support levels.
South Korea's central bank, which holds a large chunk of U.S. Treasuries, said Monday it planned to spread its reserves, which are the world's fourth largest, among a greater variety of currencies.
"The dollar is under pressure. This started early in the Far East, with news of South Korea's plan to change reserve ratios," said Andrew Busch, global FX strategist, capital markets, with Harris Nesbitt in Chicago.
"It comes on the heels of Russia saying the same thing. This has fueled speculation that Japan may do the same. That basically hit us and it ignited the euro to rally and continue to put in new highs" against the dollar, Busch said.
Late afternoon in New York, the euro was trading around $1.3252, up from about $1.3067 late Friday. U.S. financial markets were closed Monday for Presidents Day.
The dollar slid against the Japanese yen, trading at 104.09 yen, down from 105.64 Friday. The British pound rose to $1.9117 from $1.8947, while the dollar bought 1.1585 Swiss francs, down from 1.1829, and 1.2250 Canadian dollars, down from 1.2316.
How long the news will weigh on the dollar depends in part on whether the euro pushes above a key resistance area around $1.3270, said Tim Mazanec, senior currency strategist with Investors Bank & Trust in Boston.
On Monday, billionaire investor George Soros warned a conference in Saudi Arabia that moves by Middle East oil exporters and Russia to switch some revenue from dollars to euros could push the dollar to a "tipping point." (Related: Soros talks about the dollar.)
According to U.S. Treasury data, South Korean public and private investors hold $69 billion of Treasury debt, while the central bank's foreign exchange reserves are worth some $200 billion.
On Wednesday, markets will focus on U.S. January consumer prices, with Wall Street economists forecasting a rise of 0.2% compared with a fall of 0.1% in December.
"An upside surprise to inflation could help stabilize the dollar," said Omer Esiner, market analyst at Ruesch International in Washington DC. Higher inflation suggests the Federal Reserve would continue raising U.S. interest rates, which would tend to support the dollar.
"But having said that, sentiment at this point is pretty dollar-negative. The upside potential to the dollar right now will be a little more limited," he added.
The dollar earlier seesawed in choppy trade, recovering some losses against the euro, after the Conference Board's consumer confidence index for February came in above market forecasts, although the consumer expectations component fell.
"The confidence number help to stem dollar losses suffered overnight on the Bank of Korea news," said Michael Woolfolk, senior currency strategist.
"The Conference Board's reading on consumer confidence provides encouraging evidence of momentum in consumer spending and the broader U.S. economy," he added.
Following South Korea's remarks, the dollar tumbled to multi-week lows against most major currencies, seven-year lows against the Korean won and 22-year lows against the New Zealand dollar.
North Korea's offer to return to six-party talks on nuclear disarmament and moves by China to allow companies to keep more foreign exchange income also boosted the yen.
Against the Swiss franc, the dollar was down 2.00% at 1.1584 francs. Sterling was up at $1.9110.
The dollar's inability to capitalize on upbeat U.S. economic data last week had already fueled suspicions that its New Year rebound had run out of steam.
Traders may have seized on the news from South Korea in part as an excuse to sell dollars, some said.
Copyright 2005 Reuters Limited.
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