Sunday, May 24, 2009

U.S. Dollar Falls to 2009 Low on Ratings Worries

The dollar dropped to its lowest level this year Friday and was on track for its biggest weekly fall in two months on concerns about the AAA-rating status of the United States.

Growing worries about the U.S. sovereign rating after Britain's outlook was downgraded the previous day triggered heavy selling in U.S. assets, although U.S equities opened higher on Friday.

A rise in U.S. stocks and more upbeat views of the recession-hit global economy also encouraged risk-taking by investors, helping the euro break above $1.40, while sterling hit a 6 1/2-month peak versus the dollar.

"The general theme today is clearly broad-based U.S. dollar weakness, largely triggered by mounting concerns over the U.S. government debt triple-A rating," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.

"At this point, the market is kind of in a sell dollar state of mind."

In early New York trading, the ICE Futures U.S. dollar index a gauge of its value against six major currencies, was down 0.5% on the day after hitting 79.914, a fresh 2009 low.

The dollar index was on track for a 3.6% drop this week, and a more than 5% decline so far in May, one of its steepest monthly declines over the last 25 years.

The euro was up 0.6% at $1.3980 , after hitting a session peak of $1.4029.

Moody's Investors Service on Thursday said it is comfortable with its Aaa sovereign rating on the United States, but the rating was not guaranteed forever.

A test of investor appetite for dollars and dollar assets will come next week when the U.S. Treasury auctions $101 billion of two-, five- and seven-year paper.

The dollar's broad slide took it to a two-month low against the yen after Japanese Finance Minister Kaoru Yosano said on Friday the country is not thinking about intervention in the currency market.

The dollar was down 0.4% at 94.08 yen after dipping to 93.86 yen, according to Reuters data.

Sterling was up 0.3% at $1.5892 , after rising as high as $1.5947, its strongest since early November. Cable is up 4.7% on the week so far, on track for its best weekly performance since early February.