Market turmoil as dollar drops US hit by $40bn trade gap and tension over Iraq
Larry Elliott and Charlotte Denny Saturday January 18, 2003 The Guardian Fears of a bloody conflict in Iraq and the worst set of trade figures in America's history sent the dollar plunging and shares down sharply in a day of market turmoil yesterday. With the tension rising between Washington and Baghdad, gold rose $4 to a six-year high of $357 (�220) an ounce as investors sold dollars and sought a haven for their cash. The dollar - further weakened by three poor sets of US economic data and a fall in profits from the world's biggest company, General Electric - sank to $1.066 against the euro, its lowest since October 1999. Analysts on Wall Street reacted gloomily to news that the prospect of a war against Saddam Hussein led to a decline in US consumer optimism this month. The Michigan University survey found consumer confidence down from 86.7 to 83.7, confounding expectations that household optimism would be underpinned by lower interest rates and the announcement of tax cuts. "We've got war concerns, higher energy prices, a sluggish job market - it creates a mopy environment", said Alan Levenson, chief economist at T Rowe Price associates. Separate figures from the US Commerce department showed that the US's monthly trade gap hit a record $40.1bn in November. Pent-up demand unleashed by the ending of a strike in ports on the west coast produced a 4.9% increase in imports, three times the rise in exports. Meanwhile, the Federal Reserve reported that output from America's factories fell by 0.2% in December. In early trading on Wall Street, the 21% quarterly fall in earnings to $3.1bn at GE helped send the Dow Jones industrial average down by more than 100 points, while the technology-driven Nasdaq lost almost 3% of its value following gloomy overnight reports from IBM and Microsoft. Mounting war fears capped a dismal week in London, where the FTSE fell every day, closing down 61 points on the day at 3820.6, its lowest level of the year. Sterling rose to a three-year-high of $1.61 against a weak dollar, but the pound lingered near a three-and-a-half year low against the euro at 65.89 pence. After sinking in early trading on rumours that Saddam might flee into exile, oil prices later hit fresh two-year highs after US secretary of state Colin Powell said the West will have convincing evidence by the end of the month that Iraq is not cooperating with UN weapons inspectors. A leading oil analyst said the rise in the price of crude to last night's level of about $34 a barrel in New York might be the start of a long period of high energy costs for the West. Steve Strongin, commodity director at Goldman Sachs, said the combination of strikes in Venezuela and war in the Middle East could leave the global economy facing its biggest oil shortfall in history.
