Monday August 11, 2008 - 10:11:32 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar hits new highs then slips on profit-taking
(Recasts, adds comment and quotes, updates prices, changes
byline and dateline. Previous: TOKYO)
* Dollar hits new multi-month highs but then slips back
* Profit-taking lifts euro back above $1.50
* Dollar entering sustained long-term recovery?
* Oil remains key variable
By Jamie McGeever
LONDON, Aug 11 (Reuters) - The dollar scaled new multi-month
highs on Monday as traders reassessed whether the slowdown that
has already hit the U.S. economy would show up elsewhere in the
world but it then succumbed to sharp profit-taking.
The euro, which last week suffered its biggest weekly fall
since its 1999 inception, fell almost as low as $1.49 <EUR=>
earlier on Monday as the downward technical momentum intensified
before snapping back to above $1.50.
Strong anti-inflation comments from a leading European
Central Bank policymaker and a 1.5 percent rebound in oil prices
helped take the gloss off the dollar's earlier rally and
provided traders with the excuse to cash in on the month-long
fall in commodities and dollar's latest surge [ID:nWEA5361].
ECB Governing Klaus Liebscher's warning that inflation
remained high reminded investors that the ECB's main concern was
still to tame inflation and pipeline price pressures.
But ECB President Jean-Claude Trichet's warning last week
that the euro zone economy was facing tough times confirmed what
many analysts had suspected -- the rest of the world is not
immune to the economic pain being endured in the United States
stemming from the year-long financial crisis.
"The market is recalibrating its expectations for global
growth: we already knew the U.S. growth dynamic was weak, but
other economies are now starting to feel the impact of high oil
prices and weak housing markets in some areas," said Phyllis
Papadavid, currency strategist at Societe Generale in London.
"We're seeing some recoupling, which is holding the dollar
in good stead. But we're not necessarily convinced it's going to
last because it's not been supported by good macro news in the
U.S.. It has been a significant move and we've broken some
important levels, but we're not convinced 'this is it'."
At 0815 GMT the euro was up 0.4 percent on the day at
$1.5065 <EUR=>, rebounding sharply from the near six-month low
of $1.4908 on the EBS platform in early Asian trade.
The dollar index, a measure of the greenback's value against
a basket of six currencies, was trading at 75.550 .DXY. The
index hit a six-month high of 76.192 earlier on Monday.
OIL THE FX KEY
Papadavid said the euro was likely to remain under pressure
in the near term but could see some sporadic relief such
Monday's rebound as traders buy euros relatively cheaply.
Despite Trichet's relative pessimism on the economic outlook
after the ECB kept interest rates on hold at 4.25 percent on
Thursday, he didn't sound like a policymaker advocating easier
policy any time soon.
"Liebscher was on the hawkish side and that's been helping
the euro," said Ian Stannard, senior currency strategist at BNP
Paribas. But he added that the euro's rally was likely to be
In the near term, the dollar looks poised to gain further
ground, especially if traders continue to liquidate the long
positions built up in commodities and non-dollar currencies over
Oil rebounded 1.5 percent to $116.90 a barrel CLc1 on
Monday amid heightened tensions between oil-exporting giant
Russia and former Soviet state Georgia, having hit a three-month
low below $115 on Friday.
Oil prices could be key to the dollar near-term.
"The longer oil stays stable or lower, the more
inflation-targeting central banks such as the ECB and the RBA
(Reserve Bank of Australia) have been able to focus on downside
risks to growth. Conversely if oil were to start creeping higher
again in the absence of clear fundamentals, it would raise the
risk of a partial reversal of recent moves," UBS strategists
said in a note on Monday.
"As policymakers outside of the U.S. converge towards dovish
positions, we believe the market will approach a period of
consolidation as the dollar moves into new, stronger ranges
across the board," they said.
The euro's weakness against the yen, meanwhile, helped keep
the dollar down against the Japanese currency, off 0.25 percent
on the day at 109.95 yen <JPY=>.
In terms of economic data, the UK economy takes centre stage
Monday with the release of the latest producer prices and trade
balance figures [ECON].
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