Dollar Lengthens Slump Against Yen and Euro

 
By James Ramage 
 

        The dollar slumped to a one-month low against the yen on Tuesday, as tumbling oil prices continued to fuel investors' concerns about global growth.
        The dollar fell 1.2% in late-afternoon trade to 116.35 yen, its lowest in a month. The euro gained 0.6% to $1.2512, the strongest since Nov. 27.
        Global oil prices fell for a fifth session in a row, with Brent crude futures ending at a more-than-five-year low of $59.86 a barrel. Some investors are worried that oil's drop signals a softening global economy, prompting them to shed their bets on a stronger dollar and buy haven assets such as the Japanese yen and U.S. Treasurys.
        "The concern is that the decline in oil prices will be more persistent, and that this will start to hurt economies and change central banks' behavior," said Sireen Harajli, foreign exchange strategist at Mizuho Bank. "So investors have headed into assets that are considered safer, like the yen and the Swiss franc, which is why we see [the dollar-yen pair] back around 116 yen."
        The Russian ruble dropped to a record low against the dollar Tuesday despite the Bank of Russia raising interest rates by 6.5 percentage points. Analysts said investors were convinced that the rate increase wouldn't be enough to alleviate the pressure on the currency from falling oil prices and Western sanctions. The dollar was up 4.3% at 68.442 rubles in late afternoon trade.
        Investors will be watching the Federal Open Market Committee on Wednesday for signals about the central bank's timeline for raising interest rates. The Federal Reserve's policy-making committee concludes its two-day meeting with a statement scheduled for release at 2 p.m. EST.
        Investors have piled into the dollar against the yen and euro over the past several months in their belief that an improving U.S. economy would move the Federal Reserve to raise interest rates sooner than central banks in Japan and the eurozone. The Bank of Japan and the European Central Bank continue to employ easing measures to stave off deflation and shore up their economies that also weaken their respective currencies.
        Higher U.S. interest rates would increase returns on assets denominated in the dollar, making the currency more attractive to investors.
        But in the current environment, a more hawkish tone by the Fed may not be enough to lift the greenback from its current slump against the yen and the euro, said Vassili Serebriakov, currency strategist at BNP Paribas.
        "Even if the Fed removes the 'considerable time' language, it's not clear it would help the dollar, if U.S. yields remain subdued in line with global risk aversion," Mr. Serebriakov said.
        Write to James Ramage at james.ramage@wsj.com
        (END) Dow Jones Newswires

        December 16, 2014 17:08 ET (22:08 GMT)

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