Monday December 29, 2008 - 12:14:10 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar hobbled, sterling sinks to record low vs euro
* Dollar falls broadly on gloomy U.S. economy outlook
* Parity moves into view as stg hits record low vs euro
* Swiss franc <CHF=> rises on geopolitical risks
* Commodity currencies catch bid with oil and gold
(Adds quotes, updates prices, changes byline)
By Veronica Brown
LONDON, Dec 29 (Reuters) - The dollar fell broadly on
Monday, eroded by a grim outlook for the U.S. economy and the
Federal Reserve pouring liquidity into a battered U.S. banking
Sterling continued its downtrend, hitting a record low
against a broadly stronger euro as parity with the single
currency moved into sharp focus.
The pound also hit a record trough versus a basket of
currencies earlier in the global session as a bleak economic
backdrop and expectations for UK interest rates to stay well
below those in the euro zone weighed heavy.
As the U.S. currency softened, dealers said the Swiss franc
gained sharply on heightened geopolitical risk as Israeli
warplanes pounded the Hamas-ruled Gaza Strip for a third
consecutive day. [ID:LT345484].
With U.S. interest rates now at 0-0.25 percent, the U.S.
central bank has turned to other ways of boosting growth
including flooding the banking system with masses of money.
Analysts say this environment is a bugbear for the dollar
from a relative yield perspective compared with the euro zone,
where borrowing costs stand at 2.5 percent.
"The fact that rates are so low are a reflection on the
state of the U.S. economy and the fact that policy options are
becoming very limited. That will be a thorn for the dollar,"
said Phyllis Papadavid, currency strategist at SocGen in London.
Dealers also cited strength in commodity currencies
including the Norwegian crown <NOK=> and Australian dollar
<AUD=> as oil CLc1 and gold <XAU=> prices climbed in the wake
of hostilities in the Middle East.
By 1140 GMT, the euro had strengthened roughly 2 percent
against the dollar to $1.4345 <EUR=> while the U.S. unit shed
2.3 percent against the Swiss franc to 1.0430 francs <CHF=>.
Against the yen, the dollar was down 0.8 percent at 89.95
yen <JPY=>. The dollar also sank 2.1 percent versus the
Norwegian crown to 6.9453.
Thin holiday trading conditions exacerbated moves, dealers
The pound tumbled to a record low of 97.98 pence <EURGBP=>,
as dealers eyed parity -- that would be a first since the single
European currency's launch in 1999.
Trade-weighted sterling <=GBP> fell to 74.2, the lowest on
daily records kept by the Bank of England which date back to
"Retail sales figures will be closely watched over the
coming weeks as the economy hopes to receive a boost from
holiday-season sales," said Geoffrey Yu, analyst at UBS in a
"Nevertheless, anecdotal reports continue to suggest limited
gains, while other areas of the real economy will continue to
see strong challenges."
Higher interest rates in the euro zone have increased the
euro's appeal against the pound as it has narrowed the yield
spread between euro zone and UK government bonds.
The yield on 10-year UK bonds <GB10YT=RR> hovered around
3.114 percent on Monday, near a record low of 3.008 percent hit
last week, while the yield on its euro zone counterpart
<EU10YT=RR> fell to an all-time trough of 2.909 percent.
(Reporting by Veronica Brown; Editing by Mike Peacock)
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