Dollar Falls After Iran Says It Test-Fired Long-Range Missile

By Kosuke Goto and Stanley White

July 9 (Bloomberg) -- The dollar fell against the yen, euro and Swiss franc after Iran's state television said the nation test-fired a long-range missile capable of reaching Israel.

The Swiss franc strengthened and oil rose on speculation the test signals tension between the U.S. and Iran will keep escalating. Ali Shirazi, an aide to Iran's Supreme Leader Ayatollah Ali Khamenei, said yesterday his nation would strike Israel and the U.S. Navy in the Persian Gulf in response to any attack on its nuclear facilities.

``The news of Iran's missile launch is causing the dollar to fall,'' said Masahiro Sato, joint general manager of the treasury division at Mizuho Trust & Banking Co. in Tokyo. ``It's also boosting the Swiss franc in a flight to safety. It's difficult to judge Iran's intentions regarding its nuclear capabilities, and that is a significant geopolitical risk.''

The dollar fell to 107.34 yen as of 7:43 a.m. in London from 107.50 yen late in New York yesterday. It also weakened to $1.5705 versus the euro compared with $1.5670 yesterday.

The dollar may decline to 106.70 yen today, Sato said.

Iran ``test-fired successfully the Shahab 3 missile with a 2,000-kilometer (1,240-mile) range and a one-ton weight at 8 a.m. local time today,'' the Al-Alam television channel said in a report on its Web site.

``In this holiday-thinned market period, geopolitical news like Iran's test firing will see safe-haven currencies like the yen benefit,'' said Robert Rennie, chief currency strategist based in Sydney at Westpac Banking Corp., Australia's fourth- biggest lender.

Swiss Franc

The Swiss franc advanced to 1.0307 versus the dollar from 1.0337 late yesterday in New York.

South Korea's won surged for a third day on speculation the government intervened to strengthen the currency and curb inflation. The currency climbed 2.7 percent to 1,004.90 against the dollar, from 1,033 yesterday, according to Seoul Money Brokerage Services Ltd. It climbed above 1,000 for the first time since April 29.

The British pound weakened against the euro after an industry report showed U.K. consumer confidence slid to the lowest level since at least 2004. Britain's currency declined to 79.66 pence per euro from 79.56. The Nationwide Building Society index of consumer confidence declined 6 points to 63, the lowest since the survey began in May 2004.

Fed's Bernanke

The dollar earlier today approached the strongest in two weeks versus the yen after Fed Chairman Ben S. Bernanke said he may extend an emergency-loan program for securities firms into next year.

The dollar climbed 0.4 percent against the euro yesterday after Bernanke said in a speech in Arlington, Virginia, that the Fed is committed to financial stability and may extend the duration of funding to dealers obliged to bid at U.S. government debt auctions.

The Fed's Primary Dealer Credit Facility, which provides direct loans, and the Term Securities Lending Facility, which auctions as much as $200 billion in Treasuries, were created in March in response to the credit crisis.

``Bernanke's comments actually represented how bad the situation is in the U.S. financial sector,'' said Yuji Kameoka, a senior economist and currency analyst in Tokyo at Daiwa Institute of Research, a unit of Japan's second-largest brokerage. ``It's true his comments helped dispel fears about a credit crunch, but investors won't be able to buy the dollar aggressively on his comments.''

Seven Rate Cuts

The dollar has fallen 11 percent against the euro since September, when the Fed made the first of seven reductions in the target lending rate, now 2 percent, to prevent a housing slump from plunging the U.S. economy into a recession. Bernanke and U.S. Treasury Secretary Henry Paulson are scheduled to testify before Congress tomorrow.

Crude oil for August delivery gained 0.5 percent to $136.75 a barrel after tumbling 3.8 percent yesterday. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.

Any gains in the euro may be limited by speculation European Central Bank President Jean-Claude Trichet will reiterate that he has no plans to raise interest rates further. The ECB said it has ``no bias'' for monetary policy after increasing borrowing costs a quarter percentage point to 4.25 percent on July 3.

Trichet presents the central bank's annual report to the European Parliament at 9 a.m. in Strasbourg today. ECB board member Jose Manuel Gonzalez-Paramo will speak at a conference in Madrid at 9:30 a.m. local time.

``The chance of the euro breaking new record highs is receding,'' said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``Trichet won't go out of his way to talk about raising rates. He's pretty comfortable with where rates are now, and that takes the energy out of the euro.''

The 15-nation currency may fall to $1.56 today, he said.

To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net