LONDON, July 23: The dollar rose sharply on Tuesday, pushing the euro below parity for the first time for more than week, on speculation US investors may be forced to repatriate funds in response to the slump on Wall Street.
The single European currency fell to 0.9882 dollars against 1.0083 late on Monday.
Expressed another way that left the dollar worth 1.0119 euros, up from 0.9918.
The dollar also rose against the yen to 117.75 from 116.22 the previous evening.
The rally of the dollar was sparked by talk that US mutual funds, faced with record share sales by panicked investors, might be forced to sell their holdings of overseas stocks in order to raise cash.
Earlier in Tokyo, the vice president for foreign exchange at Citibank, Hidehiko Inamura, said: I heard ... there is huge liquidation of funds in the US and they have repatriated foreign investments.
The benchmark S and P 500 US stock index plunged 3.3 per cent on Tuesday to 819.85 points the lowest close for more than five years.
There’s been a suggestion US mutual funds may have been pulling funds out of Asia and repatriating them in order to pay redemptions to US investors, said Commerzbank currency strategist Kamal Sharma.
However, the analyst said the large move in the dollar’s valuation was as much to do with the fact that it had been heavily oversold by speculators.
Nothing much has changed. The fundamentals still point to further dollar weakness but the dollar had been bashed up pretty badly and it was never going to fall in a straight line, Sharma said.
Other analysts were equally unconvinced the dollar would be able to maintain its upward momentum.
Standard Chartered currency strategist David Mann said Wall Street had further to fall, which in turn would pressure the dollar.
The truth is that markets were very, very long (overbought) on euros, Mann said.
The euro was changing hands at $0.9882 against 1.0083 on Monday, 116.36 yen (117.14), 0.6323 pounds (0.6379) and 1.4552 Swiss francs (1.4546).
The dollar was being quoted at 117.75 yen (116.22) and 1.4728 Swiss francs (1.4430).
The pound was at 1.5642 dollars (1.5789), 184.09 yen (183.50) and 2.3024 Swiss francs (2.2785).
On the London Bullion Market, an ounce of gold stood at $320.95 against 322.90 late on Monday.—AFP