Tuesday August 26, 2008 - 10:47:33 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar surges as euro thumped by weak Ifo data
* Dollar rises to 6-month high vs euro at $1.4597 <EUR=>
* Below forecast Ifo data prompts sharp euro sell-off
* Sterling slides to 2-yr low vs dollar
* High yielders slide on increased risk aversion
By Simon Falush
LONDON, Aug 26 (Reuters) - The dollar surged broadly on
Tuesday, hitting a six-month high against the euro as the single
currency tumbled after weak German data highlighted frailty in
the euro zone economy, fuelling more speculation of a possible
interest rate cut.
The dollar hit its highest this year against a basket of
currencies as a surprisingly weak reading in the Ifo business
climate index added to the view that Europe's economy is in
severe slowdown mode and could well enter a technical recession.
The German business climate index in August fell to 94.8
from 97.5 in July, much softer than the slight dip to 97.1
economists had expected.
Earlier, data had shown that German GDP contracted in the
second quarter for the first time since 2004, while German
consumer sentiment worsened more than expected, hitting a
five-year low and also stoking fears about the health of the
German economy. [ID:nLQ127223].
"The numbers out of Germany have been softer and it
underlines the downside risk to euro zone activity, meaning the
euro is under more pressure as the ECB may have to respond by
cutting rates," said Daragh Maher, deputy head of global foreign
exchange research at Calyon.
The euro fell over a cent following the Ifo data to a
six-month low of $1.4597, by 0904 GMT <EUR=> while the dollar
index rose to the year's high of 77.501, as other currencies
tracked the euro lower.
The euro is down more than 6 percent this month - and
looking set for the biggest monthly fall since its 1999 launch.
The dollar was up 0.5 percent at 109.89 yen <JPY=>.
European equity indexes tracked Asian markets lower after
U.S. financial sector troubles including a ninth bank failure
intensified jitters on the financial sector with the MSCI World
Equity Index .MIWD00000PUS, falling to its lowest since
This prompted investors to bail out of risky trades in the
high-yielding Australian dollar, which fell to a seven-month low
against the greenback, while the New Zealand dollar fell around
High-yielding currencies suffer when risk aversion increases
as investors exit relatively risky carry trades where they
borrow low-yielding currencies to fund purchases of these
"Problems in the U.S. financial market are leading to equity
market weakness which is the principal driver hitting the
high-yielding currencies," said Maher at Calyon.
"The dollar is well-supported now, while commodity prices
are falling, meaning there's quite a lot of downside possible
for currrencies like the aussie."
The kiwi dollar was down 1.8 percent at $0.6918 <NZD=>,
dented by New Zealand posting its highest monthly trade deficit
in 11 months in July, while the Australian dollar had fallen as
low as $0.8527, its lowest in seven months <AUD=>.
The pound fell to its lowest in over two years against the
dollar to trade as low as $1.8369 <GBP=> and matched a 12-year
low on a trade-weighted basis set the previous session <=GBP>.
Data last week showed British economic growth stalling in
the second quarter, stoking expectations for the Bank of England
to trim interest rates.
The pound was also dented by a survey showing optimism in
Britain's dominant service sector deteriorated sharply in the
three months to August. [ID:nLM709515]
Investors will wait to see how the U.S. economy is faring
when new home sales data for July and a consumer confidence
survey for August are released later in the day.
(Reporting by Simon Falush; editing by Stephen Nisbet)
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