Dollar on defensive as anthrax jitters weigh

London, Oct 15: The dollar was on the defensive on Monday, nursing hefty losses from the previous session as dealers waited to assess the impact on the US economy of the latest anthrax contamination scares.

The dollar shed one per cent against the euro and the Swiss franc and was knocked from one-month highs against the yen on Friday as fresh reports of anthrax exposure in the United States underlined the country’s vulnerability to possible biological attacks.

“The anthrax scares have put the dollar on the defensive by dealing a further blow to consumer sentiment and fuelling risk aversion,” said Neil Mackinnon, senior currency strategist at Merrill Lynch. “The fresh uncertainty of terrorist acts comes at a timewhen US economy is already deteriorating.” The US currency was reeling even before the anthrax developments after data on Friday showed US retail sales plunged in the wake of last month’s suicide attacks. US retail sales slid in September at their fastest pace in nearly nine years.

The dollar was down a quarter per cent at 121.80 yen at 1000GMT, almost a yen below one-month highs scaled on Friday before jitters about anthrax took hold. After losing one per cent to the Swiss franc on Friday, the dollar was reasonably steady against the traditional safe-haven currency at 1.6240 francs. The euro orbited $0.91, holding gains of more than a cent from one-month lows plumbed last week. Fears of biological assaults have been growing after a spate of cases in which anthrax-contaminated mail was sent to companies in Florida, New York and Nevada.

“The anthrax scare has reminded people just how serious the situation could be,” said Paul Mackel, currency strategist at Dresdner Kleinwort Wasserstein.

“The dollar’s reaction to Friday’s news flows shows how nervous the market is, but dealers are reluctant to take new positions now until they get a clearer sense of what is happening.”

Analysts said major currencies were likely to remain confined to recent ranges, with dealers uncertain how to trade against a background of US-led attacks on Afghanistan, reprisal fears and concerns over the global economy.

“It’s going to be rumour and counter-rumour about terrorism dominating this week,” said Lee Ferridge, head of global currency strategy at Rabobank in London.

Making the most of the softer US currency and illiquid trading conditions was the Australian dollar, which forged to one-month highs above US$0.5160.

Dealers said talk that diversified miner WMC Ltd was set for a takeover by Alcoa Inc was propelling the currency higher, while a rise in gold prices was also lifting sentiment. Despite the dollar’s vulnerability, traders said it would remain supported against the
yen as the possibility of intervention by Japanese authorities remained.

Japan intervened on seven days late last month to halt an export-damaging rise in its currency.

— Reuters