[PEN-L:33117] the $

["Ian Murray" <seamus2001@xxxxxxxxx>]

Dollar at three-year low

Oil and gold go up, shares go down and the markets nervously wait for
war

Larry Elliott, economics editor
Saturday December 14, 2002
The Guardian

The renewed threat of a war against Iraq and production curbs from the
oil cartel Opec sent the US dollar tumbling to three-year lows against
the euro yesterday and prompted falls in share prices in both Europe and
North America.

Financial markets paid little heed to a less gloomy than expected
snapshot of US consumer confidence and instead were preoccupied by
geopolitical risks and the effect of rising fuel prices on already weak
corporate earnings.

The jittery mood was reflected in the strength of gold prices, which
stood at $330 an ounce last night, close to three-year highs, and the
poor performance of equities.

In London, the FTSE 100 closed down 57.2 points at 3878.1, its lowest
level for two months, while an early 80-point drop in the Dow Jones
industrial average meant Wall Street was on course for its second week
of losses.

Some support was given to both the dollar and shares following the
release of the Michigan consumer confidence survey, which showed an
improvement in sentiment from 84.2 to 87, above Wall Street's estimate
of 85.0.

Analysts said, however, that despite the recovery in sentiment from the
nine-year low reached two months ago during frenetic falls in the stock
market, consumers were still only marginally more upbeat than they were
in the period immediately after September 11. Consumers remained
sensitive to fresh bad news, either from the fragile US economy or from
events in the Middle East.

They cited an American military strike against Iraq, North Korea's
decision to reactivate a nuclear power plant and reports that extremists
linked to al-Qaida received a chemical weapon from Saddam Hussein as
sources of concern.

"There's just not a lot of conviction here from the point of view of
buyers," said Richard Cripps, chief market strategist at Legg Mason Wood
Walker.

"It's hard to get things started here - the market is looking very
heavy," he said.

The euro shed nearly a quarter of a cent to almost $1.0200 on the better
than expected US data, but it quickly recovered to trade around
$1.0230 - more than 0.5% higher than the previous US close.

Earlier the single currency built on Thursday's sharp gains to climb as
high as $1.0259 - its highest level since mid-January 2000.

The dollar also bounced up against the yen to ¥120.80, more than ¥0.25
above the three-week lows hit just before the release of the data, but
down more than 1.5% from the previous US close.

Oil futures were up sharply yesterday following Saudi Arabia's speedy
move to implement its share of the 7% cut in oil production - about 1.7m
barrels a day - agreed by Opec in Vienna on Thursday. The price of crude
for January delivery in New York was up by more than 50 cents to $28.58
a barrel, while January Brent crude in London rose by 43 cents to
$27.30.

Dealers fear that dearer energy will hit the spending power of consumers
and also affect the bottom line of companies which are already
struggling to pass on higher costs in an increasingly competitive
environment.

Figures from the American government yesterday showed that the price of
goods leaving factory gates fell by 0.4% last month.