DOLLAR FALLS TO LOWEST IN 6 YEARS VS. STERLING

DOLLAR FALLS TO LOWEST IN 6 YEARS VS. STERLING

The U.S. dollar fell to a six-year low against the pound sterling Monday as the British petrocurrency continued to gain from rising tensions in the Persian Gulf, traders said.

Until Monday, sterling had not traded above $1.90 since January 1982.The Federal Reserve was reported selling sterling in New York for the Bank of England, but the amount could not be confirmed. The pound hit a high of $1.9050 before falling to $1.9010 after the intervention.

While the dollar's weakness against sterling was understandable, its sluggishness against most other major currencies was surprising, traders said.

Normally, in times of rising tensions, investors turn to the U.S. dollar as a safe haven currency.

Apparently, there are enough people out there willing to sell the buck, said Michael Vernamonti, a trader at First Pennsylvania Bank in Philadelphia. There's a general pressure on the dollar since last Thursday's trade figures were released.

Last Thursday, the Commerce Department reported that the U.S. merchandise trade deficit widened to $13.8 billion in February from $12.4 billion in January. Most economists had expected a narrowing of the deficit to about $11 billion and the higher figure caught the market by surprise and revitalized the bearishness toward the dollar, which has not yet dissipated, traders said.

Valerie Walker of Harris Trust and Savings Bank in New York said the

escalation of tensions in the Persian Gulf, where U.S. and Iranian troops exchanged fire, damaging oil installations and ships on both sides, is underpinning the dollar to a certain degree.

That is why we didn't come in this morning and sell off the dollar, she added.

Meanwhile, the yen was the only major currency that was weaker against the

dollar. Traders said the Persian Gulf situation holds true for the yen also.

The Japanese economy, which imports more than 90 percent of its oil, is likely to be hurt because of higher oil prices, another consequence of the gulf attacks.

Trading, however, was quiet and - with little interest in the dollar - the focus shifted to cross trades, particularly the sterling/deutsche mark and sterling/yen crosses, traders said.

Overall, there will be further weakness (in the dollar) but it is difficult to say when it will occur given the current situation in the gulf, said Wayne Reckow of Security Pacific Bank in New York.