Dollar Hits 15-Month High as G7 Meets

The U.S. dollar surged to a 15-month high against a major currencies on Friday as plunging stocks and persistent tight credit markets prompted investors to scramble for cash preferably in the world's reserve currency.

Earlier the flight-to-safety sent the yen to a more than six-month high against the U.S. dollar and a three-year peak versus the euro. The Japanese currency also rose sharply against higher-yielding units such as the Australian and New Zealand dollars, as carry trades were unwound.

Investors are looking to the Group of Seven finance ministers and central bankers, currently meeting in Washington, for remedies to revive the global banking system after recent bailouts, liquidity injections, and coordinated rate cuts failed to thaw the frozen credit markets.

"The U.S. dollar continues to trade broadly stronger on an aggregate basis as risk aversion continues to be the key driver of forex and equity markets globally," said Dustin Reid, senior currency strategist at RBS Global Banking & Markets in Chicago.

"The demand for dollars on the funding side remains high. As long as markets remain risk averse to this degree, it is difficult to see the U.S. dollar making a material reversal despite many of the issues currently gripping global markets being home grown," he said.

In midday trading in New York, the Intercontinental Exchange's U.S. dollar index, which tracks the value of the greenback against a basket of six currencies, rose 0.7 percent to 82.105 , after rising as high as 82.223, the strongest level since June 2007.

The euro fell against the dollar at below $1.35.

G7 Action Wanted

Coordinated interest rate cuts by the Federal Reserve and other major central banks earlier this week failed to relieve investors' fears that the freeze in credit markets will damage banks more and provoke a sharp economic recession around the world.

U.S. stocks tumbled on Friday, sending the benchmark S&P 500 below 900 for the first time in five years, as investors liquuidated risky bets.

"There are hopes out there that the G7 meeting will end with some coordinated action from policymakers. It is still an extremely volatile, extremely nervous market," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York.

"But in our view, the events of the last week have shown policymakers are prepared to do whatever it takes to stabilize markets. There is a global understanding of the severity of the problem," he added.

The euro last traded down to near 134 yen, after hitting a three-year trough of 132.80 yen.

The higher-yielding Australian dollar fell 4.3 percent to US$0.6529 , while the New Zealand dollar dropped 1.7 percent to US$0.5958.

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The U.S. dollar traded little changed at 99.45 yen , coming off its worst level since March at 97.92 yen, according to Reuters data.

"I think that we will see a recovery in the yen crosses towards the end of the day because no one will want to be short carry ahead of G7," said Kathy Lien, head of currency research at GFT Forex in New York.

"The currency markets are definitely trading on the hope of a big coordinated action post G7," said Kathy Lien, head of currency research at GFT Forex in New York.

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