Dollar hits one month high

The dollar index rose 0.4% to 81.354 on Tuesday, having fallen to a 15-year low of 79.957 last week. (Getty Images)

The dollar rose to a one-month high against a basket of major currencies on Tuesday, pushed up by global investors seeking safety in the greenback as the turmoil in the US credit market spreads overseas.

Investors took comfort in the dollar amid concerns of a global credit crunch after the likes of French bank BNP froze funds because of subprime concerns and a Canadian trust proved unable to procure funds to repay some of its short debt.

“Across global asset prices, it looks like there is some position unwinding going on and that is filtering through to FX where some of the biggest positions are long sterling and short dollar," Sophia Drossos, currency strategist with Morgan Stanley in New York, told Reuters.

The dollar index, which measures the US currency against six other major currencies, rose 0.4% to 81.354 on Tuesday, having fallen to a 15-year low of 79.957 last week.

The euro was trading at a six-week low of $1.3489 today. The Eurozone currency began to fall amid reports Spanish bank Santander is facing a 2.2 billion euro exposure to high-risk US loans.

As a result of the woes in the credit markets, investors have slashed bullish bets in favour of high-yielding currencies like sterling in favour of safer options like the dollar.

Sterling and Indian rupee suffer

Sterling dipped below the $2.00 level for the first time in over a year after UK July inflation came in below the Bank of England's 2% target rate. Today it was trading at two-month trough against the dollar down 0.4% to $1.9893, its lowest level since the middle of June.  

Unlike the Federal Reserve and European Central Bank, the Bank of England refused to join the global central bank push to flood short-term money markets with cash in a bid to resist a liquidity freeze. This has kept sterling deposit rates high but the pound has still weakened.

India’s rupee fell to a five-week low against the dollar, trading at 40.75 rupees to the dollar after importers also sought haven in the greenback. Importers such as Indian Oil and Reliance Industries have to raise foreign currency needed to pay for goods, making falls in the rupee more expensive for them.

India, celebrating sixty years after independence today, saw its currency hits its highest level in more than nine years on July 24, but it has fallen after global investors began to abandon emerging-market assets on woes the fallout from US credit markets will hamper growth in Asia.

India’s cost of imports rose by 36.7% in June from a year earlier, the fastest pace in seven months, in particular buoyed by rising crude oil prices, the government said on August 1. The country paid $5.66 billion for oil in June, 9.9% more than a year ago.

Crude oil prices in New York have increased 18% this year, making fuel costs more expensive for India, a country that imports 75% of its energy needs. Two-thirds of India’s oil exports come from the Gulf and are worth over $22 billion per year.

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