Euro Fall VS Dollar On Drop In US Stocks

The euro was whipsawed Wednesday and finished the New York trading session down against the dollar, overcome by a drop in U.S. stocks. The Dow Jones Industrial Average declined more than 400 points late Wednesday, encouraging investors to escape positions back into the major funding currency, the dollar.

The euro fell to an intraday low of $1.2520. The same flight-to-safety flows supported the yen against higher-yielding rivals. The dollar fell to an intraday low of Y95.70, and the euro dropped to Y119.92. "Investors want to hold cash, U.S. dollars and Treasurys in lieu of equities. What we're seeing is a shift of capital. It's literally tracking equities tick for tick," said Greg Salvaggio, vice president of capital markets at Tempus Consulting in Washington.

The release of the Federal Open Market Committee meeting minutes in the afternoon did nothing to help sentiment. Federal Reserve officials said they were ready to slash interest rates to levels not seen in half a century if the economic picture keeps worsening. "The minutes just continue to drive home the message that this is going to be a prolonged recession," Salvaggio said, and that is a supportive message for the buck. Wednesday afternoon in New York, the euro was at $1.2537 from $1.2626 late Tuesday, while the dollar was at Y95.94 from Y97.00, according to EBS. The euro
was at Y120.27 from Y122.49. The U.K. pound was at $1.4974 from $1.4947, and the
dollar was at CHF1.2132 from CHF1.2014 late Tuesday.

The euro actually rallied against the dollar and yen early in the session,
scoring intraweek highs of $1.2815 and Y124.30, after a raft of disappointing
U.S. data and on a technical move following range-bound trading since Monday.
The rally may have been cut short by bargain hunters, in addition to the
action in equities. "We would continue to view dollar weakness - such as today - primarily as buying opportunities," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank.

At first, the euro gained on a knee-jerk reaction to October U.S. consumer
prices, which took the biggest plunge in 61 years. The consumer price index
dropped 1.0% on a seasonally adjusted basis compared to the previous month, the
Labor Department said. It was the largest drop since February 1947 - a sign that
"nobody's spending money," said Salvaggio. In other data, home construction took its fourth tumble in a row in October, falling to a new record low. Housing starts decreased 4.5% to a seasonally adjusted 791,000 annual rate, after falling 3.0% in September, the Commerce Department said.

The euro then advanced more as it breached certain levels above $1.27.
But analysts said the rally was technical and didn't reflect any material
change in the global economic outlook. Therefore, the rise wasn't sustained.
"We're in a world where currency liquidity is extremely thin, even in euro
versus dollar," said Michael Klawitter, a currency analyst at Dresdner Kleinwort
in Frankfurt. He said his trading screens show a very small number of trades with relatively small volumes, yet these transactions are affecting foreign exchange prices "in a meaningful way." Consequently, the rationale behind the surge in the euro, "does not necessarily link to fundamental data," Klawitter said.