Dollar Weakens on Impact of Lehman, US Data

The U.S. Dollar retreats as the fate of investment bank Lehman Brothers hangs in the balance leading currency traders to convert their gains in the past week into solid profits.

The Dollar selling frenzy was also fueled by current releases of US economic data showing a lower than expected drop in retail sales in August.  The decline marks a two-month consecutive drop of retail sales.  

The recent reports quashed expectations that the Federal Reserve will increase the interest rates benchmark at the end of 2008.

Dollar Losses Minimal

Stephen Malyon, currency strategist at Scotia Capital, said the disheartening US economic figures pulled down the Dollar from its position of strength.  Malyon added however that the Dollar’s losses are minimal given the worrying figures released by US authorities.

Malyon also said that the underperformance of the PPI could send signals of further moderation especially in the face of continued reduction of oil prices.  The muted reactions of the market could be attributed to the uncertainties of Lehman Brothers’ fate as the market is awaiting word from the beleaguered investment bank.

Unsupported news of the outright sale of Lehman Brothers, the fourth largest in the US investment banking sector, led investors to increase their risk appetite.  This removed some of the strength of the Dollar as most investors regarded the buck as a safe haven currency.  

Euro, Yen Trounced the Dollar

The Euro edged the Dollar in New York during days trading as it went up by 0.5 percent to close at $1.4098.  The Euro skidded Thursday to its lowest this year at $1.3879.

The gains fettered the ICE Futures index of the Dollar as it went down by 0.5 percent to 79.424.  The Dollar scored an all time year high on Thursday and was pegged at 80.375 against a basket of six currencies.

The Dollar also fell against the Yen by 0.2 percent to close at 106.91.  The Euro on the other hand gained by 0.2 percent at 150.71 Yen.  The rebound of the Euro on Thursday stopped a two-year skid of 147.47 Yen.  

However, the Dollar and Yen are both poised to gain from this week’s trading as investors will continue to stay away from risks, unwinding leverages, and decline of commodity prices.

This shows clearly that the Dollar is becoming a safe haven currency.  The negotiations on the probable sale of Lehman reversed the international equity market but it also fueled profit taking from traders on long Dollar position.

The European and Japanese stock markets inched higher on Friday as both posted separate gains.  The US market however decline by 1 percent at the opening.

Lehman Brothers’ stock continued to suffer as it lost 90 percent of its value since last year.  Failure of the bank to roll out a recovery plan worsened its stock positions.