Friday August 15, 2008 - 11:31:02 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar rallies, hits 6-mth high vs euro
* Dollar rallies to 6-month high vs euro at $1.4700
* Dollar-led commodity market liquidation feeds gains
* Sterling skids to 2-year lows vs dlr
* Dlr index .DXY powers to 7-month high
(Adds quotes, updates prices, changes byline)
By Ian Chua
LONDON, Aug 15 (Reuters) - The dollar raced to a six-month
high against the euro on Friday, propelled by growing worries
about the health of the euro zone economy and further lifted by
liquidation in commodity markets.
The dollar's rally knocked an already floundering sterling
to two-year lows near $1.85 <GBP=>, while the U.S. currency also
powered to a seven-month high against a basket of six major
"It's not just the U.S. economy that has problems now, it's
clearly spilling over to the rest of the world, we saw this
yesterday with GDP numbers in Europe ... no one believes the
European Central Bank is going to tighten any more and they're
moving to price in a rate cut," said Martin McMahon, FX
strategist at Credit Suisse in Zurich.
Data on Thursday showed the euro zone economy contracted in
the second quarter for the first time in the common currency's
"The dollar has also broken through important technical
levels. The $1.50 area was the base of the trading range in the
past four, five months and now that it's gone through, there's
clearly open space in front and the question is how far will
euro/dollar ease before it finds support," McMahon added.
By 1043 GMT, the euro was down 0.6 percent on the day at
$1.4715 <EUR=>, having earlier touched $1.4700 -- its lowest
since Feb. 20.
The dollar was further supported by steep falls in commodity
prices, triggered in part by mounting worries about weakening
Oil CLc1 has fallen more than 20 percent from the all-time
high above $147 set in July, while the Reuters-Jeffries/CRB
index .CRB, a global index of commodity prices, has slid
almost 18 percent from its July peak.
"People have been selling commodities that they funded out
of dollars, so they've been needing to cover their commodity
positions by buying dollars and that's generated a broad dollar
rally," said Chris Turner, head of FX strategy at ING.
The dollar has rallied across the board, rising more than 5
percent against the euro this month alone, as investors shifted
their view on the global economy's ability to withstand the U.S.
Among the key milestones achieved in the past two weeks, the
dollar index snapped a three-year downtrend and broke above its
200-day moving average for the first time in 2-1/2 years.
By contrast, sterling looks set for a weekly close below its
200-day moving average around the $1.9020 area, seen by
technical analysts as a key bear signal.
The dollar index, which measures the value of the greenback
against a basket of six currencies, struck a seven-month high of
77.252. Versus the yen, the U.S. unit reached a 7-1/2 month high
of 110.66 yen <JPY=>.
Dollar buying momentum has also been bolstered this week by
the Bank of England warning of economic pain ahead and Japan's
economy contracting in the second quarter at the sharpest rate
in seven years.
On the data front, the Reuters/University of Michigan
sentiment survey -- due at 1355 GMT -- is expected to show a
reading of 62.0 in August, a slight improvement from 61.2 in
"This survey could give some hints (on whether) U.S.
consumers are able to drag the economy out of the mud. The
market expects a further rise, while we bargain for a weaker
confidence (reading). If the survey disappoints the market,
EUR/USD will see a moderate recovery ahead of the weekend," said
Goldman Sachs on Thursday said it was time to let go of its
10-year dollar bearish stance.
(Additional reporting by Veronica Brown; Editing by Ruth
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