Dollar falls as stocks rally
The greenback loses ground against major currencies while stocks gain; investors await potential rate cuts from central banks.
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| Click on the chart to see other currency exchange rates. |
NEW YORK (CNNMoney.com) -- The dollar fell against major currencies Tuesday as stocks rallied and investors awaited the expected rate cuts of European central banks.
The rally may be pushing the dollar lower versus the the euro, pound and yen, according to Steve Malyon, currency strategist with Scotia Capital.
"On days when people are little bit more optimistic in the equity market and about the economy in general, that tends to hurt the U.S. dollar," Malyon said.
The Dow Jones industrial average (INDU (INDU)) gained 3.3%, according to early tallies. The Standard & Poor's 500 (SPX (SPX)) index added 4% and the Nasdaq composite (COMP (COMP)) climbed 3.7%.
The dollar fell against the 15-nation euro, which gained nearly three-fifths of a cent to $1.2704 from $1.2646 late Monday. The dollar also slid versus the British pound, which increased to $1.4890 from $1.4884 late Monday.
The dollar edged down against the yen, which fell to ¥93.10 from ¥93.212 late Monday.
The greenback has fallen about 11% against the Japanese currency since the failure of Lehman Brothers in mid-September.
Analysts say investors have been borrowing yen over the past 10 years in order to buy other assets, often in the United States, that have provided a higher return. As those assets, which include real estate, have fallen in value, investors have had to pay back the money to Japan.
The dollar is trading within a narrow range due to investor uncertainty over expected rate cuts from the European Central Bank and the Bank of England on Thursday, Malyon said.
Malyon thinks most investors will be watching to see if the ECB pushes for a rate cut greater than the consensus of one-half percentage point. If the bank does not exceed the consensus, he believes the euro may weaken further as markets punish policymakers. Since the fall, the euro has fallen about 10% against the dollar.
The Bank of England's move may not have as much impact, Malyon said.
"There's greater uncertainty surrounding what the ECB is going to do," he said.
Sterling has been under pressure; it has lost nearly 17% against the dollar since mid-September.
Oil: Prices fell to a 3-1/2 year low Tuesday, as concern about the floundering global economy and falling demand again took center stage.
U.S. crude for January delivery fell $2.32 to settle at $46.96 a barrel, the lowest closing price since May 2005. A day earlier, oil prices plummeted more than $5 a barrel in the wake of a spate of gloomy economic reports.
Economy: The Institute for Supply Management, a purchasing management group, reported Monday its manufacturing index declined to its lowest level since May 1982, when the economy was mired in its last recession.
Adding to the downward pressure, the National Bureau of Economic Research made official what most investors and economists have been suspecting for months - that the U.S. economy is in a recession. 
