Monday August 18, 2008 - 11:44:44 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar takes a breather from rally as commodities gain
* Euro up 0.1 percent at $1.4712, off earlier 6-month low
* Rally in oil and gold allows dollar to consolidate gains
* Yield outlook favours further dollar recovery
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, Aug 18 (Reuters) - The dollar eased from a six-month
high against the euro on Monday as an overnight recovery in oil
and commodity prices spurred investors to take profit on the
U.S. currency's dramatic rally.
Oil rose at one stage by more than $1 to above $115 a barrel
CLc1 and gold bounced off a nine-month low to test $800 an
ounce <XAU=>. That trimmed losses which led the Reuter-Jefferies
CRB Index to lose around 18 percent from its July peaks.
Higher commodity prices tend to be U.S. dollar-negative as
the bull-run in raw materials added to upward inflation pressure
at a time when the U.S. economy was slowing sharply in the wake
of a year-old global credit market crisis.
"The dollar seemed to overshoot the macro adjustments last
week... with the massive liquidation in the commodity markets.
But we're seeing some signs of stability there and second
thoughts about how far oil will fall is allowing the dollar to
take a breather," ING head of FX research Chris Turner said.
The euro fell to a six-month low of $1.4645 on trading
platform EBS in early Asian trade before recovering to $1.4712
<EUR=>, up 0.1 percent from late Friday U.S. trade.
It has tumbled nearly six percent against the dollar in two
weeks due to increasing investor concern that the slowdown in
the U.S. economy will be replicated in Europe and globally.
Data last week showed euro zone growth contracted in the
second quarter for the first time ever, helping scotch any
expectations of euro zone rate increases.
The dollar has also garnered broad support from the view
that the Federal Reserve has probably ended its easing cycle
after cutting rates by over 300 basis points over the last year.
The dollar index, which measures the dollar's value against
a basket of six currencies, eased 0.1 percent to 77.046 .DXY
from a seven-month high of 77.268 reached on Friday.
The dollar retreated 0.25 percent to 110.22 yen <JPY=> while
the euro was steady at 162.22 yen <EURJPY=>.
CATCHING FALLING KNIFE
The euro is broadly seen as vulnerable to further falls as
investors reposition their portfolios to catch up with the rapid
rise of the dollar.
"The massive repositioning of the market, reflected in IMM
data, has lent considerable momentum to the dollar," said Calyon
in a note to clients, saying forecasting a floor for the euro
"is now akin to catching the falling knife".
Monday is very quiet for data but investors will look to
Germany's ZEW gauge of economic sentiment and euro zone service
sector activity later in the week for more clues on the extent
of headwinds affecting the euro zone economy.
The dollar's stronger tone was seen likely to last a while
since investors are seeing signs of economic weakness in other
regions while the U.S. economic slowdown may be moderating.
Market expectations were growing for central banks in
Australia and Britain to cut interest rates in coming months
while the Federal Reserve keeps U.S. rates on hold for a while.
"The market already believes that the bulk of necessary
easing by the Fed has already been completed, consequently
allowing the dollar to enjoy gains in yield expectations against
its peers in G10," UBS said in a note to clients.
The high-yielding Australian <AUD=> and New Zealand <NZD=>
dollars, which have seen heavy losses in the last two weeks,
benefited from higher commodity prices as major exporters of raw
High yielding currencies like the Aussie and kiwi dollars
also tend to benefit from higher risk appetite. The UBS risk
index fell due to lower cross market volatility pointing to
increased risk appetite.
(Reporting by Veronica Brown; Editing by Swaha Pattanaik)
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