Losing its allure: Dollar tumbles against euro, yen

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King Dollar no more.

The greenback had soared in value against other major and minor currencies in recent months as the global financial meltdown accelerated and the buck resumed its classic role as a haven.

Now, investors and traders are selling the dollar in favor of the euro and the yen, in particular. The euro has jumped to a two-month high of $1.36 today from $1.34 on Friday and $1.29 a week ago.

The dollar also has tumbled to a 13-year low of 90.57 yen, down from 91.12 on Friday and 92.82 a week ago.

The knee-jerk explanation for the dollar’s sudden weakness is that some traders are bailing out ahead of Federal Reserve policymakers’ meeting on Tuesday, when the central bank is expected to cut its benchmark short-term interest rate to at least 0.50%, from the current 1%.

Lower interest rates tend to depress a nation’s currency, and although rates are falling worldwide with the slumping economy, U.S. rates already are lower than most.

Still, there’s no sign of flight from U.S. Treasury securities today, despite the dollar’s dive. The yield on the 10-year T-note is at a new generational low of 2.51%, down from 2.59% on Friday.

Marc Chandler, head of currency strategy at Brown Bros. Harriman in New York, said he regarded the dollar’s turnabout as ‘largely technical in nature, relating to profit-taking by momentum traders’ who’ve been riding the buck higher since midsummer.

The most optimistic take on the dollar’s retreat would be that investors and traders are less afraid of the outlook for the global economy and financial system, and don’t feel as compelled to hide in the dollar for safety.

‘People have been overly long in the dollar and are being squeezed out as risk appetite improves,’ Sebastian Galy, a currency strategist at BNP Paribas Securities in New York, told Bloomberg News.

Many world stock markets were up sharply last week, and performed much better than Wall Street.

One clear winner from the dollar’s slump: gold, which is up $17.90, or 2.2%, to a two-month high of $838.40 an ounce so far today.

-- Tom Petruno