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Selling Frenzy Further Punishes Dollar

Simon Constable

The greenback continued its slump in the currency markets Wednesday, reaching another record low against the euro and sliding further against the pound as foreign-exchange investors dumped dollars.

One euro was trading for $1.3774, up from $1.373 late Tuesday, while one pound was buying $2.0349, rising from $2.0273 previously. The dollar was slightly softer against the yen as well, buying 121.9 vs. 121.97 yen a day earlier.

The CurrencyShares Euro Trust(FXE Quote) and the CurrencyShares British Pound Sterling(FXB Quote) were gaining 0.4% and 0.5%, respectively.

"The U.S. has a huge external [trade] deficit and as a result investors are weighing the attractiveness of investing in the U.S. vs. the risk of a potentially large [downward] adjustment in the dollar," explains Peter Hooper, chief economist at Deutsche Bank Securities in New York. "Now investors have made a reassessment that the dollar is a bit less attractive than it once was."

With that in mind, foreign-exchange dealers have repeatedly marked down the U.S. currency as investors cast off dollars in favor of better prospects holding euros and sterling.

The weaker dollar did little to help lift the precious metals complex. Gold prices were off $2.30 at $662.10 an ounce, while silver was down 4 cents at $12.94 an ounce in recent New York futures market action.

As for base metals, copper prices were up 2 cents at $3.63 a pound.

The bullion-holding ETFs, streetTracks Gold Shares(GLD Quote) and the iShares Silver Trust (SLV Quote), were down 0.3% and 0.7%, respectively.

In the gold patch, Newmont Mining(NEM Quote) reaffirmed its operating outlook for the year, with gold sales likely to be in the 5.2 million ounce to 5.6 million ounce range, down from the 5.9 million ounces sold in 2006. Unit costs for 2007 are expected to be between $375 and $400 an ounce, marking an increase from $304 an ounce last year.

The company also announced it would make a $1 billion convertible bond offering to cover funds currently borrowed under its revolving credit facility.

Shares of Newmont were recently dipping 1.5%.

In soft commodities, cocoa prices were rallying more than 2% at $2,066 a metric ton, while coffee prices were better by 0.5% at $1.12 a pound.