Monday September 1, 2008 - 10:50:03 GMT
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Reuters - www.reuters.com
FOREX NEWS-Battered sterling helps feed dollar revival
* Dlr boosted by sterling's tumble after UK finmin comments
* Yen jumps vs dlr, euro as global stock markets fall
* Investors cautiously eye oil ahead of Hurricane Gustav
* Traders offer limited reaction to euro zone PMI
(Changes dateline, byline, adds comment, updates prices)
By Naomi Tajitsu
LONDON, Sept 1 (Reuters) - Sterling dropped to its lowest
level against the dollar in more than two years on Monday after
the UK's finance minister issued a pessimistic view of the
economy, helping the dollar to extend broader gains.
The dollar index crept towards an eight-month high, but
broad falls on global stock markets capped gains, allowing the
Japanese currency to rise on cooling demand for risky carry
trades that involve selling the low-yielding yen.
Markets also braced for the onslaught of a strong hurricane
on the Gulf of Mexico, which has shut down activities at oil
companies in the region and pushed oil prices more than a
Sterling dropped to its lowest level against the dollar
since late April 2006 and hit a record low against the euro on
comments from UK Chancellor of the Exchequer Alistair Darling
that the economy was facing its worst downturn in 60 years
The combination of severe weakness in the UK economy and the
Bank of England's wariness of cutting interest rates due to
higher inflation have pushed the pound more than 10 percent
lower since July, and analysts said that sterling could be in
for more losses in the near term.
"In the case of cable, the dollar was at extreme
undervaluation levels ... so from a longer term view the pair
could be in for more adjustment," said Ian Stannard, senior
currency strategist at BNP Paribas.
Sterling <GBP=> tumbled 1 percent to $1.8005 by 0844 GMT,
according to Reuters data.
Given that U.S. markets are closed for a national holiday on
Monday, market participants said that the UK currency could be
in for more losses when New York traders return to work on
Gains against the UK currency helped to push the dollar
index .DXY up 0.3 percent to 77.428, approaching 77.619
touched last week for the first time since late December.
The euro <EUR=> slipped nearly 0.2 percent to $1.4646,
staying close to a six-month low of $1.4567 hit last week.
Traders offered little initial reaction to a slight upward
revision to euro zone manufacturing PMI figures, which came in
at 47.6 in August from an initial reading of 47.5 [nLS602905].
U.S. crude oil prices CLc1 climbed as much as around 1.5
percent, after the closure of U.S. oil production and refinery
facilities in anticipation of Hurricane Gustav raised supply
"U.S. weather forecasting has become a global preoccupation
as the markets fret about potential hurricane damage to the US
energy sector infrastructure in the Gulf of Mexico," analysts at
Calyon wrote in a research note.
The dollar has rallied broadly over the past month,
benefiting from signs that the U.S. economy's weakness was
spreading to other major economies.
But the U.S. currency <JPY=> fell 0.8 percent to 107.86 yen,
as a slide in European shares , which followed their
Asian counterparts lowers, spurred an unwinding in risky carry
trades, which involve selling the yen for assets in
The yen had gained roughly 0.8 percent against high-yielding
currencies like the Australian and New Zealand dollars as well
as sterling, boosted after a fall in European stock markets,
which were following their Asian counterparts lower on Monday.
"As the global slowdown spreads and weighs on equities
markets, risk aversion will likely support the yen," said Hideki
Hayashi, chief economist at Shinko Securities.
(Editing by Victoria Main)
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