Monday June 30, 2008 - 11:08:55 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar on the backfoot as stocks falter, oil rises
* Euro up 0.1 pct at $1.5817 <EUR=>, near earlier 3-wk high
* Record high euro zone inflation cements rate hike views
* Inflationary pressures highlighted as oil tops $143
* Increased risk aversion benefits yen, Swissie
By Veronica Brown
LONDON, June 30 (Reuters) - The dollar fell to a one-month
low against a basket of major currencies on Monday, feeling the
pinch of increased risk aversion, record high oil prices and an
unfavourable interest rate outlook compared with the euro zone.
Battered stocks and worries over the credit crunch scaled
back expectations for how soon the Federal Reserve could boost
interest rates after holding them at 2 percent last week.
In contrast, the euro has benefited from widespread
expectations of a European Central Bank rate increase to 4.25
percent -- backed up by data showing annual euro zone inflation
hitting a record high of 4 percent in June.
Global inflationary pressures were highlighted as oil prices
vaulted $143 to a record high CLc1.
"We're still seeing a bit of a spill-over from the Federal
Reserve meeting last week, and its failure to signal more
decisively that it was set to hike rates has kept the dollar
under general downward pressure," said Robert Minikin, senior FX
strategist at Standard Chartered.
"What's also noticeable is that we have very much a risk
aversion dynamic -- equities have come down and yen crosses are
all responding," he added.
The euro rose to a three-week high of $1.5836 <EUR=>, with
analysts saying that a break of technical resistance around the
$1.5850 mark could open the door for a move above April's record
highs around $1.6020.
The dollar also hit three week lows at 105.00 yen <JPY=>
according to Reuters data, a two-month low of 1.0131 Swiss
francs <CHF=> and set a one-month trough of 72.041 versus a
trade-weighted basket of six major currencies .DXY.
The dollar came under additional pressure after U.S.
financial shares fell on Friday on worries about more credit
losses. Lehman Brothers forecast Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) would
write down another $5.4 billion in the second quarter, while
Moody's said it may cut Morgan Stanley's (MS.N: Quote, Profile, Research, Stock Buzz) credit rating.
With Friday's fall, the Dow Jones industrial average .DJI
was down 14.5 percent for the year, and was more than 20 percent
below its October 2007 peak at one point, meeting a traditional
definition of a bear market.
European stocks also followed the bear trend on Monday,
falling 0.3 percent on the day .
RECORD HIGH INFLATION
A flash estimate of euro zone inflation for June showed that
consumer prices jumped to a record high of 4.0 percent
year-on-year, more than double the ECB's 2 percent target.
Analysts said the data would go further towards hardening
the euro area central bank's resolve to hike interest rates when
it meets later this week, with some seeing risks increasing for
a post July tightening as well.
"The ECB fears that deteriorating inflation expectations
might induce higher-than-expected wage claims, triggering a
wage inflation spiral. As these pressures are likely to edge
higher in the near term, risks of the ECB going beyond the
expected July hike are mounting," said Clemente de Lucia at BNP
Traders said position adjustment on the last day of the
quarter and the half year accentuated market volatility.
The dollar index .DXY, which tracks the U.S. currency's
performance against a basket of six currencies, is on track for
its first quarterly rise in nearly two years, as a fall of 0.9
percent in June was outweighed by modest gains in April and May.
A light U.S. data calendar on Monday features the Chicago
PMI at 1345 GMT, but the week's spotlight is firmly on the
non-farm payrolls release on Thursday.
(Reporting by Veronica Brown; Editing by Ron Askew)
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