Tuesday August 19, 2008 - 10:44:36 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar up on commods slide, index hits 2008 high
* Dollar index hits 2008 high of 77.413 .DXY
* Euro hits 6-month low of $1.4631 <EUR=>, fails to
capitalise on surprising ZEW recovery
* Commodities renew slide; oil dips below $112/bbl CLc1
(Adds comment and quotes, updates prices, changes byline)
By Naomi Tajitsu
LONDON, Aug 19 (Reuters) - The dollar renewed its broad
rally on Tuesday, lifted to its highest 2008 level against a
basket of currencies by falling commodity prices and continuing
worries about slowing global economic growth.
The euro hovered around a six-month low versus the dollar
hit earlier in the day, unable to sustain initial gains made on
a surprisingly strong rebound in German investor sentiment, as
the data did little to quell worries about weakness in the euro
Falling equities, another wave of concern over the global
financial system and tightening strains in money markets are all
feeding the view that the weak growth and fragile asset markets
seen in the United States are being replicated elsewhere.
This has triggered a dramatic rally in the dollar this
month, while fairly resilient readings on U.S. sentiment and
output have contrasted with disappointing economic figures from
other parts of the world, including the euro zone and Britain.
"The dollar is broadly benefitting from negative news from
the rest of the world," said Adam Cole, global head of currency
strategy at RBC.
"On the whole, it's still the case that virtually all the
activity data in the world outside the U.S. has surprised on the
downside, while U.S. economic figures are coming in on the
However, the ZEW economic research institute's gauge of
expectations for Germany rose to -55.5 in August from July's
record low of -63.9, exceeding expectations for a modest gain to
-62.0. For story, click on nLJ594431.
At 0953 GMT the euro was down 0.23 percent on the day at
$1.4665 <EUR=>, having earlier in the global session hit a
six-month low of $1.4631, according to Reuters data.
The euro initially jumped to around $1.4690 after the ZEW
survey, but was unable to hold those gains, with market
participants saying that some in the market had been expecting a
The dollar index, which measures its value against a basket
of six currencies, was up 0.2 percent to 77.233, having earlier
hitting a new high for the year of 77.413 .DXY.
The dollar retreated 0.1 percent against the yen to 109.95
yen <JPY=>, dragged lower by the euro's slide against the
Japanese currency to 161.03 yen <EURJPY=>, a three-month low.
Sterling <GBP=> was one of the day's biggest losers, sliding
as much as half a percent on the day to $1.8538 and approaching
a two-year low. Some analysts said that sterling losses were the
catalyst for dollar gains in the European session.
The dollar was supported after U.S. crude oil prices CLc1
fell roughly a percent to $111.80 a barrel, while metals prices
also came under selling pressure.
European shares were down 1.4 percent on the day,
following the decline in Asian shares to 2-year lows and a sharp
slide on Wall Street on Monday.
The latest dip in commodity prices lightens inflationary
pressures, thus paving the way for central banks around the
world to cut interest rates.
The central banks most likely to cut rates in the coming
months are those in Europe, Australia and New Zealand, thus
putting downward pressure on their currencies versus the dollar.
But one central bank likely to keep rates on hold for some
time, as it did on Tuesday, is the Bank of Japan, whose base
rate remains 0.5 percent.
"The strength in the dollar index has little to do with
dollar strength but more the weakness of the other currencies,"
said Michael Klawitter, senior currency strategist at Dresdner
Kleinwort in Frankfurt.
"The market's focus is just very one-sided. At the moment
the market has decided to focus on the weakness of the euro zone
and hasn't taken a balanced view of risks in the U.S.," he said.
Renewed concerns the U.S. Treasury might have to bail out
loss-making mortgage giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac
(FRE.N: Quote, Profile, Research, Stock Buzz), on top of a 7 percent fall in Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz)
shares on fears of heavy third quarter losses, suggest all is
not well in the U.S. financial system.
The next main focus for investors is the July report on U.S.
building permits and housing starts at 1230 GMT.
This will be help to clarify whether the U.S. housing market
-- widely considered to be at the root of the year-long global
financial crisis and a major hurdle to a U.S. recovery -- is
close to a bottom. See [ECON].
(Additional reporting by Jamie McGeever; Editing by Gerrard
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