FRANKFURT, Feb. 22 - The dollar fell sharply in the foreign-exchange markets today after the Bank of Korea disclosed plans to step up its purchases of securities denominated in other currencies.
The steep decline highlighted the continued weakness of the dollar, which stabilized early this year after hitting a record low of $1.3666 against the euro on Dec. 30 and raised the possibility that the American currency could fall further at any time.
"The markets are so skittish right now that seemingly marginal news can have a big impact on the dollar," said Julian Callow, chief European economist with Barclays in London.
The dollar lost more than 1.5 cents in value against the euro, which rose to $1.3229 in afternoon trading in New York from $1.3068 late Monday. It also weakened against the Japanese yen, dropping to 104.21 yen today from 105.54 yen the day before.
Australian and Canadian currencies also gained against the dollar, as the Bank of Korea indicated, in a report to the South Korean parliament, that it might keep some of its reserves in those currencies instead of the dollar. The South Korean won posted gains as well.
The Korean plan emerged on Monday but had little effect on currency traders, in part because American markets were closed for the Presidents' Day holiday. Today, the news led to a quick strengthening of Asian currencies against the dollar, before washing over Europe and propping up the euro, which as the world's second most widely held currency is the logical beneficiary of the dollar's weakness.
Over the last few years, many central banks have registered a decrease in their dollar reserves, but this decline owed itself to the revaluation of reserves that reflected a weaker dollar. From 2001 to 2003, the euro's share of the world's currency reserves grew to 19.7 percent from 16.7 percent, according to the International Monetary Fund, although it is still far behind the dollar.
Tuesday, February 22, 2005
Posted by Mumon K at 10:41 AM