Friday February 15, 2008 - 20:44:26 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar sees worst week against euro this year
(Updates prices, adds detail)
NEW YORK, Feb 15 (Reuters) - The U.S. dollar slid against
most major currencies on Friday, and posted its worst weekly
performance against the euro in 2008 to date, after U.S.
economic reports rekindled fears that the economy continues to
slouch toward recession.
Investors pushed the dollar down against the euro for the
fifth day in the last six, pushing the euro zone currency above
$1.47 for the first time since Feb. 5, after a gauge of U.S.
consumer sentiment plunged to a 16-year low in February.
The euro last traded at $1.4684 <EUR=>, up 0.3 percent on
the day, after climbing as high as $1.4709, according to
The dollar also fell 0.2 percent to 107.67 yen <JPY=> after
the New York Federal Reserve said its New York state February
manufacturing index posted the biggest monthly decline on
The data "is very, very negative, and it's going to be
difficult to avoid negative U.S. growth in the first quarter,"
said Michael Woolfolk, senior FX strategist at The Bank of New
As a result the euro may be set for a run at its record
high just shy of $1.50, said Woolfolk, particularly with the
Federal Reserve seen cutting interest rates further below the
European Central Bank's benchmark interest rate.
Indeed, Friday's batch of weak data comes a day after Fed
Chairman Ben Bernanke warned of continued sluggish growth in
the near term and said the central bank will act as needed to
provide insurance against downside risks.
Since mid September, the Fed has cut its benchmark rate by
2.25 percentage points to 3 percent. Bernanke's remarks and
recent economic data have left investors betting on another
half percentage point cut at the central bank's March meeting.
But expectations for the ECB to follow with rate cuts of
its own have faded, with ECB officials stressing that inflation
is a bigger concern than growth.
That has continued to move rate spreads in favor of the
euro, reducing the appeal of holding U.S. over euro-zone debt.
The dive in U.S. short term yields in the wake of
Bernanke's testimony and news of credit rating downgrades of
U.S. bond insurers, has seen two-year rate differentials move
further against the dollar. The U.S. two-year bond yield is now
nearly 210 basis points below the average for the Group of 10
most industrialized nations, said Credit Suisse in a note to
After dipping to around $1.4440 last week, the euro has
retraced more than half of the ground it lost since rising
above $1.49 on Feb. 1. Though still weaker versus the dollar so
far in February, it has gained 1.2 percent this week, it's best
week since the week ended December 30. .
The dollar also fell 0.5 percent to 1.0920 Swiss francs
<CHF=>. Sterling was the only major currency to weaken against
the greenback, falling 0.4 percent to $1.9607 <GBP=>, with
dealers citing technical factors for the pullback.
Some analysts worried that inflation may not be only a
European phenomenon. The Reuters/University of Michigan
consumer sentiment index showed one-year inflation expectations
soared to their highest since August 2006.
Separate data on Friday showed U.S. import prices rose by
more than economists had expected in January, mainly the result
of high food and energy costs.
Alan Ruskin, chief international strategist at RBS
Greenwich Capital in Greenwich, Connecticut, said in a research
note to clients that Friday's data "will play to market talk of
Stagflation refers to a period of high prices, high
unemployment and low growth. For the United States, the last
severe episode of stagflation was in the 1970s.
(Reporting by Nick Olivari and Steven C. Johnson)
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