The dollar fell the most in almost two weeks against the euro after Israel’s assault on the Hamas- controlled Gaza Strip raised concern that oil exporters will reduce crude supplies to U.S. consumers.
The currency also dropped versus the yen before a U.S. report today that may show home prices dropped the most on record in October, adding to concern the recession will deepen in the world’s largest consumer of oil. The euro rose to near a record high against the British pound as technical charts signaled the common European currency may reach parity this week.
“The mood in the market now is to buy the euro and sell the dollar because it’s the safest bet,” said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc. “Mideast tensions aren’t good for the U.S. economy.”
The dollar slid 1 percent, the most since Dec. 17, to $1.4067 per euro as of 7:41 a.m. in London, from $1.3927 late in New York yesterday, when it reached a one-week low of $1.4364. The decline trimmed this year’s advance to 3.7 percent. The euro gained 0.7 percent to 127.13 yen, paring this year’s loss to 22 percent.
The dollar weakened to 90.37 yen from 90.68 yen, extending its 2008 loss to 19 percent.
The U.S. currency fell 0.6 percent to $1.4478 against the British pound, dropped 0.8 percent to 1.0534 versus the Swiss franc and slipped 0.6 percent to 29.3953 against the Russian ruble.
The euro climbed to 96.90 British pence from 96.71 pence yesterday, when it reached a record 98 pence. It rose 32 percent in 2008. Against the ruble, the euro traded at 41.2043. The ruble fell to a record low against the euro yesterday as Russia devalued the currency for the 12th time in seven weeks.
Israel, Hamas
The greenback weakened against 14 of the 16 most-active currencies after Israel hinted it may broaden its assault on Gaza Strip with a ground operation after three days of air raids failed to end cross-border rocket attacks.
Crude oil for February delivery jumped 13 percent in the last two days on the New York Mercantile Exchange. It recently traded at $39.69 a barrel in after-hours electronic trading, down 0.8 percent from yesterday’s close.
The U.S. is the world’s largest energy consumer. It consumed 20.7 million barrels of oil a day in 2007, while the European Union consumed 14.9 million barrels a day, according to the British Petroleum Statistical Review.
“Rising oil prices makes it more expensive for those in the U.S. to buy the commodity, especially when its economy is doing poorly and the weather is cold there,” said Yuji Saito, head of the foreign-exchange group at Societe General SA in Tokyo. “It’s extremely negative for the dollar.”
The U.S. currency may weaken to $1.4200 per euro and 89.50 yen today, Saito said.
‘Bad Shape’
The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
The dollar snapped two days of gains against the pound and fell for a third day versus the franc before U.S. reports this week that economists estimate will show the recession deepened.
Home prices for the 20 largest metropolitan areas in the U.S. fell 17.9 percent in October from a year earlier, the biggest decline since record-keeping began in 2001, according to economists in a Bloomberg survey before the S&P/Case-Shiller index is published today.
“The U.S. economy is in a bad shape and there are worries that it may get worse,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The dollar is being sold.”
The dollar may weaken to 90 yen today, Ishikawa said.
‘Across the Board’
The U.S. Treasury committed $6 billion to support GMAC LLC, the financing arm of General Motors Corp., widening the government’s effort to keep the largest U.S. automaker out of bankruptcy, according to a statement issued yesterday.
The euro rose for a seventh day against the pound, its longest stretch since Sept. 3, as charts used to predict price movements show the currency may reach parity this week, according to Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in London.
“Euro strength is creeping across the board, hitting a fresh all-time high versus the pound, paving the path for parity as early as this week,” Laidi wrote in a research note yesterday. “One of the several factors making parity possible is remaining technical strength in the euro-dollar.”
Europe’s single currency may “retest” its 200-day moving average of around $1.4650, which also represents a 61.8 percent Fibonacci retracement of the decline from the record high of $1.6037 on July 15 to the $1.2330 low on Oct. 28, Laidi said.
Fibonacci analysis is a mathematical formula based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of one indicates a currency may move to the next. A failure suggests a trend may stall. Other Fibonacci points include 76.4 percent.
