Friday July 11, 2008 - 11:29:36 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dlr on the backfoot as shares fall; oil surges
* Euro up 0.1 percent at $1.5806 <EUR=>
* Dollar weighed broadly as stock markets fall
* Fannie, Freddie bailout report soothes sentiment slightly
* Oil hits record $145.98 per barrel CLc1
(Changes byline, updates prices, adds quotes)
By Veronica Brown
LONDON, July 11 (Reuters) - The dollar fell to one-week lows
versus a basket of major currencies on Friday, weighed by stock
market losses and record high oil prices, although slightly
improved sentiment on the financial sector limited its decline.
Credit market jitters were soothed slightly by a New York
Times report that the U.S. government is considering taking over
U.S. mortgage agencies Fannie Mae and Freddie Mac if their
condition worsened, with some analysts saying such action could
finally mark the bottom for the troubled financial sector.
"If it's true that the worst-case scenario is that they get
taken over by the government, then you know what the worst case
is as they are not likely to go under," State Street FX
strategist Lee Ferridge said.
Others, however, said the fact that things may have got so
bad as to require a government bail-out should not be seen as a
long-term positive for the U.S. economy, stocks or the dollar.
"It will be positive because it will avoid any bankruptcy,
but ... at the end of the day someone will have to pay for it,
so I am not sure it will be a good solution," Carole Laulhere,
currency strategist at Societe Generale in Paris.
The euro was up 0.1 percent at $1.5806 <EUR=> by 1059 GMT,
having hit a one-week high earlier at $1.5824 and back near the
top end of the $1.5300 and $1.5910 range that it has been
trapped in for the past two months.
The dollar index steadied at 72.511, having hit a one-week
low of 72.368 .DXY. The dollar was flat at 107.03 yen <JPY=>.
OIL SURGES, DATA WATCHED
Soaring oil prices played into dollar sentiment as the cost
of crude surged to a record $145.98 CLc1. U.S. stock futures
pointed to a lower Wall Street open on Friday, despite General
Electric Co's (GE.N: Quote, Profile, Research, Stock Buzz) in-line second-quarter profit.
As well as stock markets and sentiment on financials, the
dollar is likely to take its cue from U.S. data on Friday, with
the Reuters/University of Michigan preliminary July consumer
sentiment expected to fall to a fresh 28-year low of 55.5.
"Another drop, especially if accompanied by a jump in
inflation expectations could put the dollar on the defensive on
stagflation worries," JP Morgan said in a research note.
Rising inflation -- in part fanned by energy prices --
prompted the European Central Bank to hike rates to 4.25 percent
last week, giving the euro its biggest yield advantage versus
the dollar in its 9-1/2 year life.
ECB President Jean-Claude Trichet said on Thursday that euro
zone inflation, which is running at a record 4 percent, will
remain above the central bank's desired level for longer than
first expected. The ECB targets inflation of just below 2
percent in the medium term.
Calyon said in a research note that analysis suggested "a
sustained high inflationary environment is negative for the
dollar whilst the euro outperforms".
(Reporting by Veronica Brown; Editing by Victoria Main)
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