Dollar dropped to record low against majors in thin market

The Dollar took another beating early this morning, dropping to record lows against the Euro, the Swiss franc and a basket of currencies because of a growing view that the US Federal Reserve will cut interest rates again next month. Forex traders said low liquidity in the holiday-thinned market exaggerated currency moves and prices could remain volatile for the rest of the day. US markets were closed on Thursday for Thanksgiving and

Japan's markets are closed on Friday for a national holiday. Economic Co-operation and Development (OECD), which warned in a report on Wednesday that overall losses caused by the US mortgage market crisis could feasibly hit $300 billion. European Central Bank President Jean-Claude Trichet said on Thursday he was against abrupt and "brutal" swings in exchange rates, but investors still pushed the euro well above 1.4900 to put a test of the psychologically important 1.5000 level in sight.


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The Dollar took another beating early this morning, dropping to record lows against the Euro, the Swiss franc and a basket of currencies because of a growing view that the US Federal Reserve will cut interest rates again next month. Forex traders said low liquidity in the holiday-thinned market exaggerated currency moves and prices could remain volatile for the rest of the day. US markets were closed on Thursday for Thanksgiving and Japan\'s markets are closed on Friday for a national holiday. UsdJpy hit a 2-1/2-year peak down to 107.54 as investors, worried about the fallout from credit market problems and the impact on the broader economy, remained averse to risk, even though stock markets stabilized after several days of falls. The EurUsd was trading up to 1.4967 intraday and record high. FX dealers said earlier the Dollar\'s move lower was mostly technically driven as stop-loss orders to Sell it were triggered one after another. UsdChf was down to 1.0888 record low. UsdJpy went down to 107.54 the lowest since June 2005. The Yen is being supported by a reversal of carry trades, in which investors had borrowed the Yen to fund the purchase of higher-yielding assets. To reduce their risk exposure, they are selling the higher-yielding assets and buying back the Yen. The impact of the housing downturn in the United States has raised expectations that the Federal Reserve could follow up two cuts in its fed funds rate with another one in December, and that is undermining the Dollar. Worries about the fallout have been stoked by the Organization for Economic Co-operation and Development (OECD), which warned in a report on Wednesday that overall losses caused by the US mortgage market crisis could feasibly hit $300 billion. Analyst said "that has been the key driver of the Dollar\'s move today. We are seeing another round of risk aversion and worries that we could see more financial institutions in the US coming under stress". European Central Bank President Jean-Claude Trichet said on Thursday he was against abrupt and "brutal" swings in exchange rates, but investors still pushed the euro well above 1.4900 to put a test of the psychologically important 1.5000 level in sight.

By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland