Dollar Continues Slide Against Euro

The dollar extended its slide against the euro and other currencies Thursday, amid resurgent concerns that foreign central banks will seek to diversify their financial reserves away from dollar-denominated assets.

The buck suffered a fresh blow after Japanese Prime Minister Junichiro Koizumi told parliament that, “in general,” diversity in foreign exchange reserves was a good thing.

Koizumi said in response to a question at parliament that “it’s necessary to diversify the investment destinations” of reserves while “considering what’s profitable and what’s stable.”

Japan’s Ministry of Finance, which manages the world’s largest foreign reserve holdings of $841 billion, quickly clarified that it had no plans to shift funds out of dollars.

But analysts said that Koizumi’s comments reinforced fears that the weak dollar is pressuring many nations to invest their reserves in securities of other countries with stronger currencies.

The euro is viewed as the prime beneficiary of any shift by central banks away from U.S. dollars.

The euro rose to $1.342 on Thursday in New York, up from $1.341 on Wednesday. It is nearing its all-time high of $1.364 reached Dec. 30.

Despite the Ministry of Finance’s denials, “the suspicion lingers that more Asian central bank diversifiers are to appear,” brokerage Goldman Sachs told clients in a report Thursday.

The dollar’s sharp decline since 2002 has devalued U.S. Treasury bonds and other dollar-denominated securities held by foreigners.

The dollar was hit last month by reports that South Korea was considering diversifying its reserves away from dollars. Korean officials denied any plans to sell dollars.

On Thursday the dollar fell to a seven-year low of 1,001 Korean won, down from 1,004 on Wednesday. But the buck strengthened modestly against the yen, ending at 104.02 yen, up from 103.85.