LONDON, March 24 - The dollar fell more than one percent against the euro and Swiss franc on Monday as investors grew more cautious about the length of the war on Iraq after a weekend of casualties and setbacks for the U.S.-led coalition. The dollar, which hit two month highs on the euro and franc on Friday on optimism about a swift end to the war, slid to $1.0661 per euro and 1.3830 Swiss francs. After three days of minimal setbacks, U.S. and British troops endured combat casualties on Sunday, while Iraqi President Saddam Hussein made a televised appearance on Monday hurling defiance at the coalition forces sent to topple him.
"The market got ahead of itself and now we are seeing retracement on the first bit of bad news. Now the war looks longer and messier than people had expected last week, so the market reacts to any slippage in timetables or bad news in a exaggerated fashion," said Steven Pearson, chief currency strategist at Halifax Bank of Scotland Treasury Services. "But we shouldn't get too carried away with daily movements. The range of outcome for Iraq is so diverse that the market can become so volatile." By 1255 GMT the dollar had shed nearly a full yen to 120.46 yen, off its three-month high of 121.87 on Friday.
MARKET'S BIGGEST FEARS
Any signs of a long war play on the market's biggest dollar fears -- that the U.S. will be saddled with huge conflict- related costs in an environment where international investors are wary of sending savings abroad to help finance its debts and its huge trade deficit. "A long conflict means more costs, more doubt about other U.S. policies and perhaps more conflicts between the U.S. and its allies," said Rob Hayward, senior foreign exchange strategist ABN Amro. "If the budget starts spiralling out of control, investors will be more cautious about investing in U.S. bonds." Equity markets are also reacting negatively to the cautious view over Iraq, with U.S. stock futures losing around two percent in Europe. Earlier in the day, the Iraqi leader made a 20-minute appearance on television, although it was unclear whether the speech was live or recorded.
A U.S. defence official confirmed on Monday that one U.S. Apache helicopter was downed in Iraq but he had no information on the fate of the two pilots aboard the helicopter, which was shown on Iraqi television. U.S. Marines were still bogged down at the southern Iraqi city of Nassiriya, the key to opening a second route to Baghdad, after taking significant casualties there on Sunday. U.S. President George W. Bush said the war was still young, although it has passed its 100-hour mark -- the entire duration of the 1991 ground assault that drove Iraqi troops from Kuwait. Over the weekend, Iraq displayed five shaken U.S. soldiers apparently captured in the ambush near Nassiriya and also filmed the bloodied bodies of up to eight men they said were dead American soldiers.//