Wednesday August 27, 2008 - 11:42:35 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar retreats from highs, Weber lifts euro
(Changes byline, updates prices, adds quotes and comment)
* Euro rebounds from 6-month low: last at $1.4750 <EUR=>
* ECB's Weber boosts euro with hawkish rhetoric
* Dollar off highs: dollar index trades at 76.87
* Oil price rebound, profit-taking also weighs on dollar
By Simon Falush
LONDON, Aug 27 (Reuters) - The dollar retreated on Wednesday
as dealers cashed in on the currency's jump the previous session
to 2008 highs against a basket of currencies while hawkish
rhetoric from a European Central Bank policymaker lifted the
The euro was already in recovery mode from Tuesday's
six-month low set after a report showed the Ifo index of German
business confidence slumping to a three-year low.
It got a further shot in the arm when European Central Bank
Executive Board member Axel Weber said any talk about lower
interest rates in the euro zone is premature. Click on
[ID:nWEA7206] for more on this story.
A rebound in oil prices, as well as persistent concern about
the U.S. economy and banking system, had earlier also helped
dent sentiment on the dollar and trigger the bout of
"There's a suggestion that the dollar's recovery has come
too far, too fast," said Chris Turner, head of FX strategy at
"People are a bit in shock at the speed of the move in the
dollar and short-term yield spreads don't justify the extent of
the euro's fall."
At 1113 GMT the euro was up 0.7 percent on the day at
$1.4750 <EUR=>, bouncing back from a six-month low of $1.4570
reached in the previous session on trading platform EBS.
The dollar index, a measure of the greenback's value against
six major currencies, fell 0.7 percent on the day to 76.73
.DXY, having hit a 2008 high on Tuesday at 77.619.
Sterling rose 0.35 percent to $1.8463 <GBP=>, after slumping
to a two-year trough of $1.8330 on Tuesday, though it fell to a
12-year low on a trade weighted basis <=GBP> after falling
against the euro. The dollar fell 0.7 percent against the yen to
108.81 yen <JPY=>.
OIL UP, DOLLAR DOWN
Weber's comments surprised markets. A batch of weak euro
zone economic data had fuelled expectations that the European
Central Bank's next move would be to cut rates, contributing to
a 15-cent fall in the single currency since its peak in July.
The U.S. Federal Reserve, by contrast, was seen as
tightening policy but minutes of the Federal Reserve's last Open
Market Committee meeting also hinted weak financial conditions
and growth would see interest rates on hold for some time.
A more than $1 increase in oil prices to above $117 CLc1,
in part supported by fears that Tropical Storm Gustav may
threaten oil facilities in the Gulf of Mexico, also reinforced
dollar selling on Wednesday.
The dollar and oil tend to be inversely correlated. High oil
prices hit the U.S. consumer, whose spending accounts for some
70 percent of the U.S. economy.
But the dollar is expected to be broadly supported by global
economic deterioration even as the Fed seems likely to keep
rates on hold in the coming months.
Other central banks in the euro zone, Britain, Australia and
New Zealand are expected to lower rates at some stage in order
to shield their economies from the threat of recession.
Analysts think the Fed is likely to raise U.S. interest
rates by around 50 basis points from the current 2.0 percent by
next August FEDWATCH.
Still, the fragile U.S. banking system remains a concern for
The Federal Deposit Insurance Corporation (FDIC) said on
Tuesday that more banks than at any time since 2003 might go to
the wall, and the Wall Street Journal reported that the FDIC
might have to tap Treasury funds to see it through the expected
wave of bank failures. See [ID:nN26366841] and [ID:nBNG286704].
U.S. durable goods orders for July are due at 1230 GMT and
Overall August German inflation figures will be released later.
"The consensus view for flat U.S. durable goods orders in
July and a contraction in core demand, albeit after strong June
figures, suggest that the USD will remain under pressure in the
afternoon," said Calyon in a note to clients.
(Reporting by Simon Falush; editing by Stephen Nisbet)
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