Rising oil price and Middle East tension put skids under dollar

Click to follow
The Independent Online

The dollar continued to shed its reputation as a safe haven for investors yesterday as poor economic news, fresh violence in the Middle East and a spiralling oil price undermined confidence in the US economy.

The dollar continued to shed its reputation as a safe haven for investors yesterday as poor economic news, fresh violence in the Middle East and a spiralling oil price undermined confidence in the US economy.

The currency hit fresh three-year lows of $1.046 against the euro as investors sought refuge in assets such as gold, which hovered near the five-year high it hit last week.

The dollar has tumbled 15 per cent against the euro this year but analysts feel it has further to fall as global tensions discourage people from investing in the US.

"The dollar has been riding for a fall," said Julian Jessop, chief international economist at Standard Chartered. "A correction is long overdue."

The trigger for yesterday's fall was heightened unease at the weekend over North Korea's plan to restart its nuclear programme. Tension escalated after news broke that three American doctors had been shot dead in Yemen.

The gloom was compounded by an unexpected fall in the number of sales of homes in the US and slowdown in the country's manufacturing sector.

Sales of existing US homes fell 3.5 per cent in November as sales cooled from record-high levels, the National Association of Realtors said.

Business activity in the US Midwest slipped in December from November's level, according to the National Association of Purchasing Management-Chicago, suggesting a subdued economic recovery.

At the same time continuing US preparations for a war with Iraq pushed the oil price up to fresh two-year highs. In New York, the price of a barrel of crude rose as high as $33.65 but closed down $1.35 at $31.37 while in London Brent ended up 43 cents at $30.20.

The price was also kept high by the impact of the ongoing oil workers' strike in Venezuela, which alone had driven prices up by $6 a barrel.

Economists fear higher petrol prices on the back of a spike in the cost of crude would force consumers to cut their spending, which in turn could lead to a further economic slowdown. Yesterday Safeway said it had been "forced" to increase its fuel prices by 2p a litre from tomorrow to 74.9p, following similar moves by BP and Morrisons.

There were fresh signs that a slowdown was already under way in the UK housing market from figures showing mortgage applications tumbled last month. High street banks approved 76,713 home loans in November, a fall of more than 10,000 from October's level and the lowest number since January.

The British Bankers' Association said the number of loans approved for mortgage equity withdrawal ­ where homeowners borrow against the value of their property ­ also fell sharply. William Mason, an executive director at the BBA, said: "Maybe the tighter housing market and the time of year had some impact on future demand."

The value of the average loan jumped to a new record of £91,500 ­ almost four times a typical salary ­ indicating that homebuyers must borrow larger amounts just to get a foot on the housing ladder.

There is conflicting news on the state of the housing market with anecdotal evidence pointing to a slowdown but figures from the lenders pointing to an unstoppable boom.

A survey of asking prices in estate agents' windows earlier this month showed that prices in some of London's most wealthy areas had fallen 14.4 per cent since September.

But Halifax and Nationwide, two of the UK's largest lenders, both report prices rising at an annual rate of almost 30 per cent, the fastest since the boom of 1989. They expect the housing market to slow but believe 2003 will see a relatively robust growth rate of about 10 per cent.

Comments