Dollar Reaches 5-Week High on China Rout, Oil Drop, Greek Crisis

Updated on

The dollar surged to a five-week high as unfinished efforts to address Greece’s debt crisis and a rout in commodities pushed investors into the safest assets.

The U.S. currency rallied along with Treasuries as Greece struggles to put forward an official proposal for aid. In China, the government failed to stop a stock-market rout that has erased more than $3.2 trillion of value, sparking a renewed selloff that spread to commodities from oil to industrial metals. The dollar slipped from its strongest levels amid signs of progress in Greece’s negotiations with creditors.

“This is not driven by the U.S. where the economy and conditions are relatively stable, it’s really being driven by a host of factors globally -- oil, China, Greece and European equities,” said Robert Sinche, a strategist at Amherst Pierpont Securities LLC in Stamford, Connecticut. “It’s a tough summer. The normal risk-aversion recipe is buy the dollar and the yen.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major peers, gained 0.4 percent to 1,194.50 at 5 p.m. New York time. It touched the highest level since June 1. The yen was little changed at 122.54 per dollar.

The currency rallied 0.9 percent this week against the euro, and reached $1.0916, the strongest since June 2.

Limited Exposure

The U.S., currency has benefited from the Greek debt crisis in part because of its limited economic exposure to the Mediterranean nation. Greece ranks as the 84th largest trade partner for the world’s biggest economy, trailing nations including Iraq and Guatemala.

“It’s more a political than an economic issue,” Peter Gorra, head of foreign-exchange trading in New York at BNP Paribas SA, said by phone. If Greece “does a hard default it’ll start to cause ripple effects. But I don’t think we’re there yet.”

The dollar’s appreciation is the most pronounced against the so-called commodity currencies, including Canada’s dollar, Swedish krona, and Norway’s krone, as China’s equity rout and turmoil in Greece eroded prospects for raw-material demand.

“Norway has been a very weak performer,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Oil clearly is a big driver. We saw weakness in oil prices last week and yesterday and Greece concerns sparking worries about euro-zone demand for oil.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE