Subprime fears cause dollar slump

From Bloomberg:

Dollar Falls to Record Low on Concern Mortgage Losses to Spread

The dollar fell to a record low against the euro and dropped versus the yen on speculation losses on debt backed by U.S. subprime mortgages will spread.

Signs a housing slump will deepen led traders to increase bets on a Federal Reserve interest-rate cut, adding to the dollar’s decline. Deutsche Bank AG, which cut its price target on the stock of Nomura Holdings Inc., an investor in U.S. mortgages, said there’s concern earnings may be eroded by losses from subprime loans.

“The momentum is very much against the dollar,” said Ian Gunner, head of foreign-exchange research at Mellon Bank NA in London. “It’s the subprime issue that tipped euro-dollar through the old highs.
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The dollar has dropped 1.5 percent in the past three days as Standard & Poor’s and Moody’s Investors Service said they may cut ratings on securities backed by subprime mortgages that are worth billions of dollars, which may increase losses at brokers and hedge funds that made wrong-way bets on the debt.
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“Slowing housing markets are certainly having adverse effects on consumer spending,” Yuji Kameoka, a senior economist and currency analyst at a unit of Japan’s second-largest brokerage, said in an interview today. “This issue will linger, further buffeting the dollar.”