The dollar sank to new lows against the Japanese yen Monday before central bank intervention stabilized it slightly. The dollar then tumbled against the German mark following an overnight devaluation of the Spanish and Portuguese currencies.
The dollar has been falling on perceptions that the U.S. Federal Reserve is finished raising interest rates for the time being, while higher rates are seen coming soon to Germany to keep inflation at bay.Higher rates would draw more money to the strong mark, meaning investors would dump dollars and other currencies for now.
As a result, the battered Italian lira briefly touched a record low against the German mark before regaining some strength today. The lira touched an all-time low of 1,219 against the mark in early trading before rallying to 1,188 by late morning.
Gold prices were modestly lower in Europe.
The greenback's prospects had seemed shaky over the weekend, after rounds of central bank interventions failed to halt the decline.
By the time markets opened in Asia Monday, the dollar sank as low as 92.70 yen in Tokyo, the lowest it had been since modern exchange rates were established after World War II.
Traders said the Bank of Japan bought dollars to try to stem the U.S. currency's fall. The dollar's plunge halted around midday after the bank's intervention persuaded speculators to move to the sidelines, traders said.
Early in Europe, the dollar had recovered slightly to above 93 yen, but it was lower across the board compared to other major currencies.
Dollar rates compared with late Friday:
-1.4013 German marks, down from 1.4355
-1.1765 Swiss francs, down from 1.2145
-4.9625 French francs, down from 5.0545
-1.5752 Dutch guilders, down from 1.6109
-1,651.30 Italian lire, down from 1,674.00
-93.11 Japanese yen, down from 94.35
-1.4117 Canadian dollars, up from 1.4013
The British pound was quoted at $1.6515, up from $1.6222 late Friday.
Markets were thrown into further turmoil after the European Union's Monetary Committee agreed late Sunday to devalue the Spanish peseta by 7 percent and the Portuguese escudo by 3.5 percent.
This was the fourth devaluation for the peseta and the third for the escudo in three years, and the dollar was caught in the crossfire.
"That strengthens the Deutschmark and drives the dollar down," said Jeremy Hodges, executive director and head of global foreign exchange sales at the investment bank Lehman Brothers in London.
"I think the dollar will continue to decline, but central banks willsmooth things out on the way down." Hodges, taking a decidedly bearish view, said he doubts anybody will be interested in buying dollars until the currency plunges to 1.35 marks and 90 yen.