Monday August 25, 2008 - 11:32:17 GMT
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Reuters - www.reuters.com
FOREX NEWS-Sterling's fall to 2-year low gives dollar broad lift
(HOLIDAY ADVISORY: Reuters will cover important moves in and
developments relating to foreign exchange markets in Europe on
Monday, August 25. But owing to the British local holiday that
day, coverage will be lighter than usual.)
* Sterling hits 2-yr low at $1.8407 GBP on UK GDP jitters
* Dollar supported by prospects of rate cuts outside U.S.
* U.S. data due later; July existing homes sales at 1400 GMT
(adds quotes, updates prices)
By Veronica Brown
LONDON, Aug 25 (Reuters) - The British pound hit two-year
lows against a broadly stronger dollar on Monday, with stalled
UK economic activity seen as another example of growing economic
malaise outside the United States.
The pound's latest bout of weakness acted as a catalyst to
help a recently revived dollar gain against other major rivals,
including the euro. But trade was thin in Europe due to a UK
Data on Friday showed the UK economy ground to a halt in the
second quarter of the year -- its worst quarterly performance
since 1992 -- highlighting the risk of a British recession and
raising the chance of a UK interest rate cut later this year.
British interest rates are currently at 5 percent compared
with a Fed Funds target rate of 2 percent, with expectations
that UK rate will fall seen eroding the pound's yield advantage.
"The growth number confirmed our worst expectations. We've
seen that the fall in house prices in the UK seem to have no
end. We cannot detect this bottom in house prices that everyone
seems to be looking for," said John Hydeskov, senior FX analyst
at Danske bank in Copenhagen.
Hydeskov also said there was a speculative element to
sterling's decline as highlighted by IMM data released late last
week. He saw the pound falling further, to below $1.80.
By 1033 GMT, sterling was trading down 0.2 percent on the
day at $1.8482 <GBP=>, having fallen as low as $1.8407 in the
global session -- its lowest since July 2006, according to
The dollar index, measuring the U.S. unit's value versus a
basket of six major currencies, steadied at 76.803 .DXY.
The pound's fall dragged the euro down 0.2 percent to
$1.4763 <EUR=> and 0.3 percent to 162.24 yen <EURJPY=>, while
the dollar eased 0.1 percent at 109.87 yen <JPY=>.
DOLLAR POISED FOR GAINS
Added to contracting euro area growth and slowing growth in
Japan, the UK growth scenario helped fuelled a view that
interest rates outside the United States may be headed lower --
supporting the case for an extension of the dollar's gains.
Bank of Japan Governor Masaaki Shirakawa said on Monday the
nation's economic growth will likely remain sluggish due to high
energy costs and slowing export growth [Id:nT337552].
"The general sentiment towards lower rates and towards the
U.S. economy managing to get out of the global crisis earlier
than the other economic areas will support the dollar over the
next couple of months," said Antje Praefcke, currency strategist
at CBCM in Frankfurt.
But while the global economic slowdown and the outlook for
monetary easing outside the United States were supportive, some
market participants remained sceptical about the dollar's sharp
gains due to persistent worries about the U.S. financial system.
In addition to problems at U.S. mortgage finance companies
Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), and speculation over
investment bank Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz), traders will also be
scrutinising a slew of U.S. housing data this week -- existing
and new home sales and two surveys of nationwide house prices.
Oil prices, which have been a key driver of the dollar's
recent revival, fell on Friday in their biggest one-day slide
since 2004. Prices rose on Monday, but stayed close to $115 a
(Editing by Swaha Pattanaik)
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