Wednesday September 3, 2008 - 12:41:07 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar extends rally, euro sinks on weak EZ data
* Euro/dollar hits 8-mth low on data showing weak economy
* Dollar continues advance, global economic jitters support
* BoC rate decision eyed ahead of ECB, BoE
(Changes byline, adds quotes, updates prices)
By Naomi Tajitsu
LONDON, Sept 3 (Reuters) - The euro plumbed an eight-month
low against the dollar on Wednesday after a fall in euro zone
retail sales and figures confirming negative growth fuelled the
possibility that the region may be veering towards a recession.
The dismal figures helped the dollar extend its winning
streak and the U.S. currency soared to an 11-month high against
a basket of major currencies as investors increasingly put faith
in the U.S. unit amid a deteriorating global economic backdrop.
"The euro had been under pressure for most of the day ...
and the retail sales have led to more of a collapse," said David
Page, economist at Investec, adding that the euro may stay under
selling pressure as it would likely be difficult for the economy
to recover from slowing growth.
"There's more trend deterioration in the euro zone, i.e. a
recession in the third quarter," he said.
Figures confirmed that the euro zone economy shrank 0.2
percent in the second quarter from the first, marking the first
quarterly decline since the data series began in 1995.
Along with a surprising 0.4 percent drop in regional retail
sales, the data added to the view that growth is slowing even as
inflationary pressures nag the economy [ID:nL2117725].
The euro <EUR=> buckled on the announcement to hit $1.4386,
its lowest since January and approaching $1.4643, the pair's
lowest level of the year.
Supporting the dollar at the expense of high-yielding
currencies was a fall in crude oil prices, which have tumbled to
around $108 a barrel CLc1 after Hurricane Gustav left energy
facilities in the Gulf of Mexico mostly unscathed.
The dollar index .DXY, which tracks its performance
against six major currencies, rose more than 0.7 percent to an
11-month high of 78.651.
The index has gained about 9 percent since mid-July,
breaking long-term technical resistance levels that have
convinced many analysts it is poised for a long-term recovery.
The dollar <JPY=> was flat against the yen at 108.65 yen,
but its overall rally continued to batter an already deflated
sterling, which hit a 2 1/2-year low due to ongoing speculation
that the UK economy is also heading towards a recession.
Sterling <GBP=> fell as low as $1.7669, crashing more than a
full cent to its lowest since April 2006, before figures showing
an improvement in the UK services sector pulled the beleaguered
UK currency to $1.7720 by 1055 GMT.
The Australian <AUD=> and New Zealand dollars <NZD=> each
fell more than 1 percent to one-year lows against the U.S.
dollar, with the Aussie pressured on data showing Australian
economic growth slowed more than expected in the second quarter.
Analysts said investors were increasingly getting on board
with the greenback as a safer place to allocate cash compared
with other currencies whose countries were further behind in
terms of economic readjustment in the wake of the global credit
"We're seeing a continuation of the trend where sentiment on
the rest of the world is deteriorating while sentiment in the
U.S. is improving albeit from a very low base, and the dollar is
outperforming as a result," RBC head of FX strategy Adam Cole
Given increasingly grim figures on economies around the
world, investors awaited interest rate meetings by major central
banks later in the day and on Thursday.
The European Central Bank and the Bank of England will issue
seperate rate decisions on Thursday, when both are expected to
keep rates on hold. [ID:nL1358323] [ID:nL2593052]
The ECB has long reiterated that its main concern lies in
taming inflationary pressures, and that it will tighten policy
if price risks ramain high.
But analysts say that it is slowly acknowledging economic
weakness and Page at Investec said an increasingly bearish
growth view may spur speculation of a possible rate cut in the
future, which may put the euro under more selling pressure.
"We saw significant market reaction to guarded comments (on
the economy) from (ECB President Jean-Claude) Trichet last month
and if we see a more significant downgrade to the euro zone
growth outlook from the Governing Council, we can expect to see
the euro under more pressure," he said.
Before the ECB and the BoE decisions, the Bank of Canada
will announce its rate decision later on Wednesday, when it is
seen holding rates at 3 percent, although there is minority talk
of a downside surprise.
(Additional reporting by Veronica Brown, editing by Stephen
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