US dollar bounces back from record lows

By YVONNE TAN

yvonne@thestar.com.my

PETALING JAYA: The US dollar bounced back from record lows yesterday on talk that central banks would intervene in the foreign exchange market.

However, expectations of a hefty rate cut by the Federal Reserve (Fed) and the weak US economy continued to undermine investor confidence in the greenback, analysts said.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said: "Given that the financial markets are pricing in at least another 50 to 75-basis-point cut in the Fed's fund rate next week, the dollar weakness will be exacerbated.

"We may see the ringgit dipping below the psychological RM3 per US dollar mark in tandem with the strengthening of other Asian currencies."

The greenback fell to a record low against the euro and a 12-year low versus the yen on Thursday after increasing credit-market losses threatened the stability of hedge funds.

The weaker-than-expected US retail sales in February also helped drag down the currency to its lowest level in decades.

On Thursday, the dollar, the world's largest reserve currency, fell to as low as 1.5651 to a euro and below 100 yen for the first time since 1995. The dollar, however, rose yesterday after securities firms speculated that central banks would take action and intervene to curb the currency's slide.

The unit traded at 1.5577 euro early yesterday and at 100.41 yen after sliding to 99.77 on Thursday.

The US Dollar Index traded on the ICE Futures, the benchmark that measures the dollar's performance against six major currencies, hit a record low of 71.701 points yesterday.

Aseambankers economist Ahmad Saifuddin Morat said he would not be surprised if the ringgit reached 3.0 to the dollar by the end of this year.

"The appreciation is faster than expected," he said.The ringgit was slightly lower against the dollar at 3.1600/1650 at 5pm yesterday against 3.1560/1600 at Thursday's close.

Dealers maintained that the ringgit would extend its gains as the Fed was expected to cut the Federal funds rate next week, causing the dollar to face another round of selling.

RAM's Yeah said the downtrend in Malaysia's exports to the United States would continue into this year unless local exporters reduced prices to maintain market share there.

"Rather than just the exchange rate, further adjustments in the global imbalance will have to come in the form of stimulating higher domestic demand in the Asian countries," he added.

URL: http://biz.thestar.com.my/news/story.asp?f...36&sec=business