FINANCIAL MARKETS : Dollar Falls Against Mark, Yen; Dow Off : Markets: Analysts blame G-7 inaction for the weakness in U.S. currency. Yields on 30-year Treasury bonds rise to 7.73%.
The dollar plunged Monday to its lowest level against the German mark since October, 1992, and hit a new post-World War II low against the Japanese yen, after the United States and its allies failed to devise a plan to stabilize the greenback.
Meanwhile, Treasury bond yields rose across the board, amid expectations that economic reports due out this week will show faster growth and rising inflation--leading to another Federal Reserve Board rate hike. A jump in oil and other commodity prices also hurt bonds.
However, U.S. stocks closed only marginally lower Monday, largely ignoring the turmoil in bonds and currencies for a second consecutive session.
The dollar’s latest plunge took center stage in the markets: In New York, the dollar plummeted to 1.530 German marks from 1.563 on Friday and briefly traded at a 21-month low of 1.518 marks.
Against the yen, the dollar closed at 97.75, compared to 98.05 on Friday. The dollar dipped for the first time below 97 yen about midday, but it recovered later on concerns about the leadership succession in North Korea and Japan’s uncertain political situation.
For most of the day, currency traders took their cue from the apparent lack of interest among the Group of Seven industrial nations to support the U.S. currency.
The G-7 leaders concluded their annual summit Sunday in Naples, Italy, without unveiling a plan to rescue the dollar and without expressing any particular concern over its alarming decline. Traders said the leaders’ inaction confirmed the market’s worst suspicion that the industrial nations did not perceive the defense of the U.S. currency as a major concern.
Dealers said trading volume was fairly light as few large banks entered the market, exacerbating the dollar’s downward trajectory against European currencies. Much of the activity was speculative, they said.
The renewed selling in the bond market also hurt the dollar. Yields rose again, after rocketing Friday when the government reported strong job growth in June.
The yield on the Treasury’s 30-year bond rose to 7.73% from 7.69% on Friday, and it now is the highest since the fall of 1992.
Shorter-term yields also jumped sharply: The Treasury sold new three-month bills Monday at an average discount rate of 4.50%, up from 4.31% last week and the highest in nearly three years.
The surge in short-term yields suggested that investors expect the Fed to officially boost short rates soon, for what would be the fifth time this year.
Michelle Laughlin, economist at the Sanwa Securities unit of Tokyo-based Sanwa Bank Ltd., said market participants worldwide are worried that the Fed hasn’t raised interest rates fast enough this year to curb economic growth and potential inflation.
“All market indexes right now signal a Fed policy that’s too accommodative,” Laughlin said. “The Fed is behind the curve in fighting inflation.”
Still, analysts described bond trading as light in advance of government reports on June producer inflation today and on June consumer inflation Wednesday.
The surprise in the markets Monday was Wall Street’s relative resilience despite bond and dollar markets’ losses: The Dow Jones industrials eased just 6.15 points to 3,702.99, recovering on late buying from a session low of 3,681.
Declining issues outnumbered advancers by just 9 to 8 on the New York Stock Exchange on light Big Board volume of 222.97 million shares. Most broad market indexes also were off only slightly.
Despite the factors weighing on stocks, optimism among some investors over second-quarter corporate profit reports kept a floor under the market, said William LeFevre, market analyst at Ehrenkrantz King Nussbaum.
Also, a good showing overnight in Tokyo and in European markets, despite tensions over North Korea’s crisis, may have lent support to U.S. stocks.
In Tokyo, the Nikkei index eased just 53.42 points to 20,473.09.
In Frankfurt, the DAX index gained 14.81 points to 2,065.66, while London’s FTSE-100 index added 21.4 points to 2,983.8.
Mexico City’s Bolsa index lost 22.77 points to 2,292.00.
U.S. stocks were also able shake off another jump in key commodity prices Monday. Coffee prices rocketed above $2 a pound to 8 1/2-years highs after another killer frost struck Brazil’s coffee-growing regions.
September coffee futures soared 47 cents to $2.35 per pound at the Coffee, Sugar and Cocoa Exchange in New York.
In other commodity trading, crude oil prices leaped above $20 a barrel for the first time in three weeks because of concerns about politically oriented labor strikes hampering Nigeria’s oil production.
August crude oil roared ahead by 70 cents to $20.18 a barrel at the New York Mercantile Exchange. Traders said the contract was poised to test 16-month highs of $20.95 hit last month.
But to break that level, traders said a strike scheduled for Tuesday by Nigeria’s senior grade oil workers would have to cripple the country’s exports. In addition, U.S. crude oil inventories would have to remain at relatively low levels.
Gold followed oil and coffee higher. July gold futures gained $3 to $387.10 an ounce on the New York Commodities Exchange.
Less Yen for the Dollar
How the dollar has sunk versus the Japanese yen recently. Daily closes in New York:
Monday: 97.75 yen, down 0.30
Source: Bloomberg Business News
