Wednesday August 27, 2008 - 20:18:32 GMT
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Reuters - www.reuters.com
FOREX NEWS-U.S. dollar slides as ECB revives rate hike talk
* Euro rebounds from 6-month lows versus dollar
* ECB's Weber boosts euro with hawkish rhetoric
* U.S. durable goods report better than expected
(Recasts, updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 27 (Reuters) - The U.S. dollar tumbled from
six-month peaks against the euro on Wednesday, as comments by a
European Central bank official rekindled speculation about an
interest rate increase in the euro zone to quell persistent
Investors also remained wary of nagging troubles in the
U.S. financial system as mortgage finance companies Fannie Mae
(FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) moved back into the spotlight,
leaving the dollar vulnerable in the near term.
The dollar also fell against a basket of six major
currencies, retreating from this year's highs.
Comments on Wednesday by ECB Executive Board member Axel
Weber, widely considered one of the most influential ECB
policy-makers, fueled the dollar's freefall. Weber told
Bloomberg News that any talk about lower interest rates in the
euro zone was premature.
He also gave the impression that if the euro zone economy
improves toward the end of the year, there might even be scope
"Weber's comments today were quite hawkish. The ECB may
subsequently change its view and it has done that in the past,"
said David Greenwald, chief operating officer at currency hedge
fund TG Capital in Costa Mesa, California, with assets of about
"But to me, the ECB's core view is hawkish and its core
predisposition is to raise interest rates. So it's very hard
for me to see a straight line move in the dollar " he added.
In late afternoon trading, the euro was up 0.5 percent on
the day at $1.4725 <EUR=>, rallying from six-month lows at
$1.4570 hit on Tuesday.
The dollar was little changed versus the yen, but had an
upward bias for most of the session, buoyed by gains in the
U.S. stock market after data showed an unexpected rise in new
orders for long-lasting U.S. manufactured goods. It last traded
at 109.59 yen <JPY=>.
Sterling was down 0.3 percent at $1.8345 <GBP=>, after
earlier touching a two-year trough at $1.8286.
The British pound has dropped 9 percent from a three-month
peak struck in mid-July, and is currently on track to post its
worst monthly performance against the dollar since 1992.
TECHNICALS SUGGEST STEEP DOLLAR PULLBACK
The dollar index, a measure of the greenback's value
against six major currencies, fell 0.3 percent to 77.009
.DXY, having hit a 2008 high on Tuesday at 77.619.
"Dollar sentiment is turning negative, not on fundamental
factors, but as market participants focus on the risk of a
longer and deeper dollar correction," said Brown Brothers
Harriman in a research note.
"Technical conditions warn of a possible sharp dollar
pullback with momentum indicators diverging (notably, the euro,
sterling and Australian dollar). Disappointment over the lack
of follow-through buying yesterday after the dollar extended
gains is encouraging the negative sentiment," the bank added.
A batch of weak euro zone economic data this week had
fueled expectations that the ECB's next move would be to cut
rates, contributing to an 8 percent fall in the single currency
against the dollar since its peak in July.
On the other hand, economists expect the Federal Reserve to
raise rates, although minutes of the bank's last rate-setting
meeting suggested that weak financial conditions and sluggish
growth could prevent such a move.
However, analysts at Credit Suisse cautioned against
reentering new short dollar positions, as European data is
likely to worsen in the near term. But the bank said the "price
action is supportive of our expectation that the dollar is
likely to struggle...coming out of the summer."
Overall, the dollar is still expected to be broadly
supported by a deteriorating global economy even as the Fed
seems likely to keep rates on hold in the coming months.
Central banks in the euro zone, Britain and Australia are
expected to lower rates at some stage in order to shield their
economies from the threat of recession.
(Additional reporting by Nick Olivari; Editing by Leslie
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