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Dollar to weaken on worse than expected credit crunch

Tue, Jul 29 2008, 06:19 GMT
by Benny Menashe

Finotec Group Inc.

The dollar declined from near a three-week high against the euro and the strongest in a month versus the yen on concern U.S. financial losses will widen and as crude-oil prices increased. The currency dropped for a second day against the euro after Federal Reserve Bank of Minneapolis President Gary Stern told the Financial Times the U.S. credit crunch will get worse. The pound fell against all of the other major currencies as U.K. house values dropped in July the most in at least seven years. ``The financial sector is far from being healthy,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``The Fed won't be able to raise rates any time soon given what's happening in the credit market. It's very difficult for the dollar to have a sustained rally.''

The dollar fell 0.3 percent to $1.5758 per euro at 8:41 a.m. in New York, from $1.5709 on July 25. It touched $1.5629 on July 24, the strongest since July 7. The dollar will trade in a range of $1.5650 to $1.5950 in the next few weeks, Serebriakov said. The U.S. currency dropped 0.2 percent to 107.61 yen, from 107.84, after earlier reaching 108.07, the highest since June 26. The euro traded at 169.55 yen, compared with 169.40. It touched the all-time high of 169.96 on July 23.

The pound fell against the euro and the dollar and gilts rose after U.K. house values dropped in July by the most in at least seven years, increasing concern the economy is headed toward a recession. The average cost of a residential property in England and Wales slipped 4.4 percent from a year earlier, Hometrack Ltd., a London-based research company, said today in a statement. That's the biggest annual drop since the index started seven years ago. Prices fell 1.2 percent from June. ``This is more bad news coming out of the housing market and adds to the growing sense the economy is slowing,'' said Grant Lewis, the London-based head of fixed-income research at Daiwa Securities SMBC Europe Ltd. ``That puts a bit of downward pressure on sterling given the expectation of rate cuts.''

Today's Economic Events

Published on  Tue, Jul 29 2008, 06:22 GMT