NEW YORK – The dollar fell to its lowest level against the euro since November 1999 and slid versus most other major currencies Friday on heightened worries about North Korea's nuclear ambitions.
The International Atomic Energy Agency confirmed that North Korea had asked its inspection staff to leave the country, the latest in a series of moves by the country toward possibly reviving its nuclear weapons program.
The United States urged North Korea to reverse its course, and said it would not negotiate in response to "threats or broken commitments."
Joe Francomano, vice president of foreign exchange at Erste Bank in New York, said North Korea's actions were "just another straw" working to break the back of the dollar.
"In the context of all the crises that are going on, plus the weak U.S. stock market and the poor Christmas retail sales, the North Korea news is taking on a greater relevance," he said.
The dollar is seen as the most vulnerable to global tensions, partly due to U.S. involvement in world hot spots such as Iraq and North Korea, but also because during times of uncertainty investors tend to favor countries cushioned by current account surpluses. The United States has a large current account deficit.
The euro smashed through several layers of resistance to reach levels against the dollar not seen since November 1999. By late afternoon in New York, it was trading up a half percent at $1.04034 , having earlier risen as high as $1.0443.
Against the safe haven Swiss franc, the dollar was off 0.77 percent at $1.3905 francs, a fresh four-year low.
Also weighing on the dollar was a fall in U.S. blue chips for the fourth straight day.
The Dow Jones Industrial Average fell 1.5 percent, burdened by geopolitical worries, high oil prices, reports of weak retail sales at Christmas and soft corporate profits.
The Nasdaq Composite eased 1.4 percent.
Light sweet crude oil traded in New York set two-week highs of $32.76 a barrel before settling modestly higher at $32.72 as Venezuela's general strike reached its 26th straight day. Gold prices also rose.
In a separate development, at least 46 people were killed when suspected Chechen rebel suicide bombers rammed vehicles packed with a ton of explosives into the local government headquarters in Grozny.
The Canadian dollar, which has been on a firming trend versus the U.S. dollar since mid-November, also was succumbing to global political concerns.
"When geopolitical risks exist, the Canadian dollar trades like an emerging market currency. There is no liquidity at year-end and that makes it even worse," said David Ebata, managing analyst at Thomson IFR in Boston.
The U.S. dollar was up 0.69 percent against its Canadian counterpart at C$1.5684, its highest in a month.
Preoccupied as it is with global security concerns, the foreign exchange market paid little attention to U.S. housing sales data, which showed sales of new single-family homes as the highest on record in November.
Sales rose 5.7 percent to a 1,069,000 annual rate, more than the 1,000,000 rate expected by economists.
DOLLAR HOLDS ITS OWN VERSUS YEN
Fears of possible intervention by the Bank of Japan to keep the dollar from falling against the yen kept the dollar well supported against the Japanese currency on Friday.
The dollar barely moved against the Japanese yen, finishing the U.S. trading day at 119.85 yen, down just 0.7 percent from Thursday.
"The market is a little concerned about token intervention from Japan at below 120 yen," said Hugh Walsh, vice president at Fortis U.S.A.
Japanese officials, worried that a strong yen would hurt its exports, have been talking down the yen for some time.
They stepped up their anti-yen rhetoric on Friday with Finance Minister Masajuro Shiokawa saying Japan must act if the yen started trending higher or if there were rapid movements in currency rates.
The country's top financial diplomat, Haruhiko Kuroda, also warned that the Ministry of Finance would closely watch currency movements over the year-end and New Year period and that appropriate action would be taken if needed.
Countering these warnings were comments by Bank of Japan Governor Masaru Hayami, a well-known advocate of a strong yen, who argued against artificially weakening the yen to defeat the price deflation.