The dollar fell to four-year lows against the euro yesterday before staging a fightback as sentiment see-sawed about US Secretary of State Mr Colin Powell's address to the UN Security Council, which detailed what the Bush administration sees as Iraq's breaches of resolution 1441. Dominic Coyle reports.
The dollar had fallen sharply in the 24 hours ahead of the presentation on fears that Mr Powell would do little to persuade other states to support a further resolution against the Iraqi regime of President Saddam Hussein.
From a close of $1.0764 in Europe on Monday, the currency slid to a low of $1.0938 early yesterday, levels not seen since March 1999.
Although it remains to be seen whether sceptical allies will fully back the US in its push for military action, markets were quick to reverse the euro's overnight gains, bouncing back to $1.075 by mid-session in New York.
"Once the dust clears from Powell's very impressive performance, people will start to focus on the challenge ahead of getting military assets in place and getting diplomatic support lined up for a possible second UN resolution," said Mr Andrew Weiss, currency strategist at AIG Trading in Connecticut."People are clutching at elements of what Colin Powell presented in order to diminish the uncertainty but the only thing certain is that a war is coming."
Ulster Bank financial markets economist Mr Niall Dunne said Mr Powell's evidence appeared to have been enough for the market.
"The market's view is simple - multilateral action, particularly if it takes place sooner rather than later, is best for the dollar. The evidence is largely circumstantial and it is far from conclusive... but what is beyond doubt is that Iraq isn't fully co-operating with UN weapons inspector."
But he said the dollar would not strengthen significantly until a resolution seemed imminent.
Strategists also linked the dollar's recovery with a pull-back in the gold price, which earlier hit a six-year high at $388.5 an ounce, but eased to trade nearer $380.
"There is little confidence that genuine longer-term fundamentals of the euro and gold support the current lofty price levels," said Mr Michael Klawitter, senior currency strategist at WestLB.
Oil prices remained steady after Mr Powell's speech, having risen in advance of it. US light crude rose 40 US cents to $33.98 a barrel, still $1.20 below two-year highs struck last month. In London, benchmark Brent crude for March delivery rose 27 US cents to $31.36 a barrel. - (Additional reporting, Financial Times Service)
