Tuesday September 2, 2008 - 10:16:40 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro below $1.45 as oil tumble lifts dollar
(Corrects current Bank of Japan interest rate in para 7)
(Recasts, adds comment and quote, updates prices, changes
byline and dateline. Previous: TOKYO)
* Dollar extends gains .DXY as oil tumble accelerates
* Dollar index at 10-mo high, euro at 7-mo low sub-$1.45
* Oil sinks toward $105 CLc1
* Sterling makes new lows as UK econ bearishness persists
By Jamie McGeever
LONDON, Sept 2 (Reuters) - The dollar extended its rally on
Tuesday to fresh 2008 highs against a basket of currencies as
oil's startling fall toward $105 a barrel boosted expectations
of lower global inflation and non-U.S. interest rates.
The euro fell to its lowest in seven months against the
rampant greenback below $1.45, while sterling's dismal run
continued and it fell to fresh historical lows.
Compounding an increasingly bleak UK economic outlook, the
dollar's broad strength helped push the pound firmly below $1.80
to a fresh low since April 2006, and the pound also made new
historical lows against the euro and a basket of currencies.
But the dominant theme driving financial markets on Tuesday
was oil's tumble to $105.46/bbl CLc1 following the downgrade
of Hurricane Gustav on Monday to Category 2.
Oil is down almost 30 percent from its record peak just shy
of $150/bbl CLc1 in July. This suggests inflation around the
world will come down in the coming months, giving central banks
room to deliver growth-supportive interest rates cuts.
Australia's central bank cut rates by a quarter percentage
point earlier on Tuesday to 7 percent, helping drive the
Australian dollar down sharply to its lowest in a year.
Base rates in the United States have already been slashed in
the past year to 2 percent while Japanese rates stand at only
0.50 percent. These rates are unlikely to go much lower.
"What does that mean? We will see mounting rate cut
expectations, which means spreads will move in favour of the
U.S. dollar and partly in favour of the yen," said Michael
Klawitter, head of FX strategy at Dresdner Kleinwort.
"So consequently, the dollar in gaining by default. That's
the key driver at the moment - what will we see with rates
spreads in 2009."
At 0830 GMT the euro was down 0.8 percent on the day at
$1.4485 <EUR=>, below $1.45 for the first time since February
and more than 15 cents off its all-time high struck mid-July.
The dollar index .DXY climbed 1.3 percent to 78.198, a
near ten-month high.
The Australian dollar was down 2.1 percent at $0.8340
<AUD=>, its lowest in a year, after the Reserve Bank of
Australia cut rates a quarter point to 7 percent.
The dollar was up 0.5 percent against the yen at 108.58 yen
<JPY=>, above a one-month low of 107.62 struck the previous day.
Sterling touched a two-year low of $1.7850 <GBP=> before
pulling back to $1.7920, down 0.5 percent.
The Australian dollar fell to $0.8472 <AUD=D4>, and hit a
fresh one-year low of $0.8458. It had briefly risen as high as
$0.8534 after the rate cut news.
The moves, with global FX market liquidity returning to more
normal levels as U.S. markets open after the Labor Day holiday
on Monday, have been staggering.
Oil is down 8 percent from Friday's settlement close, its
biggest one-day fall (because Monday was a U.S. holiday) in over
five years and takes its fall from the July peak to almost 30
The euro is down almost 10 percent from its July peak,
sterling has shed more than 10 percent against the dollar in
barely a month, and the dollar index has appreciated by 10
percent since mid-July.
All eyes will be on ECB President Jean-Claude Trichet on
Thursday when he speaks to reporters after, in all probability,
keeping rates on hold at 4.25 percent.
With oil falling sharply, investors will be looking for
signs his anti-inflation rhetoric is cooling. Maurice Pomery,
head of currency strategy at IDEAGlobal, noted that the RBA was
until recently one ofthe most hawkish central banks.
"I strongly believe others will follow sooner than
expected," he said, with the possible exception of the ECB.
But even they will be forced to recognise the changing
environment. And if they don't: "Nobody will take then at face
value," said Klawitter at Dresdner.
The UK pound, already under heavy selling pressure after
Britain's finance minister said at the weekend that economic
challenges are the greatest in 60 years, fell further.
It fell 0.8 percent to a two-and-a-half year low against the
dollar at $1.7849 <EUR=>, a 12-year low on a trade-weighted
measure at 88.5 <=GBP>, and the euro earlier hit a record high
of 81.62 pence <EURGBP=>.
To the extent that economic data will have any influence on
trading Tuesday, attention now turns to euro zone producer
prices figures and the latest snapshot of the U.S. manufacturing
sector with the August ISM report. See [ECON].
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